The missing beneficiary: Can a trust be corrected after the settlor has died?

One scenario which can create significant difficulties is where a person who was plainly intended to benefit from a trust has not actually been included within the trust deed.

Perhaps the settlor had always said that all their children or grandchildren were to benefit. Perhaps earlier drafts of the trust included the individual concerned. Perhaps the professional advisers involved recall the settlor’s intentions perfectly clearly.

Yet the final trust deed tells a different story.

The intended beneficiary is simply not there.

At that point, trustees and family members are often left asking whether the trust can be corrected and, if so, how.

The difficulty facing trustees

Where a trust deed does not include an individual within the class of beneficiaries, trustees cannot simply decide to treat that person as though they were named in the trust.

Trustees are required to administer the trust in accordance with its terms. Even if they genuinely believe a mistake has occurred, making distributions outside the terms of the trust could expose them to criticism and potentially claims from beneficiaries whose interests may be affected.

The position becomes particularly difficult after the settlor’s death. Unlike during the settlor’s lifetime, it is no longer possible to obtain fresh instructions or execute replacement documents designed to resolve the issue.

The trustees are therefore left with a trust deed which may not reflect what the settlor intended, but which remains legally binding unless and until the position is addressed.

When rectification of a trust deed may be available

In appropriate circumstances, the court has the power to rectify a trust deed.

Broadly speaking, rectification is concerned with correcting a document that fails properly to record the intention which existed when it was executed.

The court is not being asked to improve an arrangement with the benefit of hindsight, nor to alter a trust because the outcome appears unfair. Rather, the question is whether the trust deed reflects what the settlor intended at the time the trust was created.

Where there is convincing evidence that a beneficiary was omitted by mistake, the court may be prepared to rectify the trust deed so that it reflects the settlor’s true intentions.

If successful, the effect can be significant. The trust may operate as though the error had never occurred.

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The importance of evidence

The obvious challenge in many cases is that the settlor is no longer alive to explain what they wanted.

As a result, the outcome will often depend upon the documentary evidence available.

Relevant material may include:

• drafts of the trust deed
• attendance notes
• correspondence between the settlor and professional advisers
• letters of wishes
• trustee records
• witness evidence from those involved in establishing the trust.

The quality of that evidence is often critical. It is not enough to show that someone ought to have benefited or that their exclusion now appears unfair. The court will want to understand precisely what the settlor intended when the trust was established and whether the trust deed properly recorded those intentions.

Is a court application necessary?

In many cases, yes.

Even where there is a broad consensus that an error has occurred, trustees will often require the protection of a court order before departing from the wording of the trust deed.

That can be particularly important where substantial assets are involved, where tax consequences may arise, or where the interests of other beneficiaries could be affected by the proposed correction.

A carefully prepared rectification application can provide certainty for trustees and beneficiaries alike, while ensuring that the trust is administered in accordance with the settlor’s actual intentions rather than an unintended drafting error.

Construction

Sometimes, issues with trust deeds may be resolved through the court’s interpretation of the trust deed rather than formal rectification. Whether the problem is one of construction or rectification will depend upon the nature of the drafting and the evidence available. In the case of a missing beneficiary, construction may be a less likely route but worthy of consideration.

Could there also be a professional negligence claim?

Sometimes the evidence demonstrates that the omission arose because the trust documentation failed properly to implement the settlor’s instructions.

Where that occurs, it may be necessary to consider not only whether rectification is available, but also whether there are grounds for a professional negligence claim against those involved in preparing the trust.

The two issues are often connected. A thorough investigation at an early stage can help identify the most appropriate route to resolving the problem and protecting the interests of the trustees and beneficiaries.

How we can help

Disputes involving trust rectification can be legally and factually complex, particularly where the settlor has died and the events in question took place many years ago.

Our contentious trusts and probate team advises trustees, beneficiaries and family members on rectification applications, trust disputes, and related professional negligence issues. We can help assess the available evidence, advise on the available remedies and, where necessary, pursue or defend court proceedings.

A missing name in a trust deed does not necessarily mean a person was intended to be excluded. Where a mistake has occurred, early advice can be crucial in establishing what happened and determining whether the court can put matters right.

If you have any questions, please get in touch by filling out the form below.