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Court ruling clarifies rights of trust beneficiary

A landmark ruling by the Royal Court of Jersey has established that the actions of a trust settlor can be challenged by a beneficiary on the grounds that the former was unduly influenced by a third party, writes David Jenner.

Jersey, 7 December 2018: In the Matter of the Piedmont and Riviera Trusts [2018] JRC 210, the Royal Court of Jersey has declared invalid the settlors’ purported exercise of powers of revocation of their trusts on the grounds that they did not act of their own free will but had been unduly influenced by one of the trusts’ beneficiaries.

Although neutral in the proceedings, the trustees sought directions from the Court in light of concerns about the circumstances surrounding the signature and delivery of the revocation notices, which the settlors failed to answer. One of the beneficiaries (M) also reported that she had been told by the settlors that another beneficiary (L) was pressing them to revoke the trusts and threatening adverse consequences if they failed to do so.

As might be expected, the Court confirmed that, under Jersey law, a power of revocation is a personal, not fiduciary, power. Such a power may quite properly be exercised out of pure self-interest and cannot be challenged on the grounds that the power holder’s purpose, or intention, goes beyond the scope of, or is not justified by, the instrument creating the power.

The Court went on to consider whether the exercise of such a power might be challenged on the grounds that the power holder acted under the undue influence of a third party. L submitted that only the direct victims of undue influence had the standing to complain of it. The Court, finding Jersey law to be similar to English in this regard, acknowledged that, in the majority of cases, it was likely to be the direct victim who sought relief since, in most cases, that would be the person who suffers loss.

In the trust context, however, that is not so: here, if the trusts were validly revoked, the trust property would pass back to the settlors, and the beneficiaries would lose the possibility of benefiting from it (the trusts being discretionary). Moreover, given that the undue influence may continue, the beneficiaries could not reasonably be expected to rely upon power holders to complain after the event that they had not acted of their own free will.

Accordingly, the Court found that, under Jersey law, a beneficiary must have standing to challenge the purported exercise of a power over a trust in which he is interested on the grounds that the power holder exercised the power under the undue influence of a third party. In the case of the Piedmont and Riviera Trusts, the Court further found as fact that the settlors had indeed been unduly influenced to sign and serve the revocation notices which were, accordingly, invalid.

David Jenner is Managing Director of Lutea, which provides trustee and related advisory services to families and businesses across the globe. The firm has offices in Jersey, Hong Kong, Anguilla and the UK. For more information visit www.lutea.com.

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