Rectification of a Jersey trust preferred to setting it aside for mistake

In the Matter of DD [2010] JRC 193, 21 October 2010 Commissioner Clyde-Smith, and Jurats Le Breton and Morgan

This case concerned an application by the Settlor and New Trustee ("DD") to the Royal Court, for rectification of the trust deed and an associated declaration of trust or in the alternative that the trust be set aside on the basis of mistake.

Facts:

The Settlor was advised in 2003 that he would be considered non-domiciled in the UK for Capital Gains Tax ("CGT") purposes, but deemed domiciled for Inheritance Tax ("IHT") purposes. Prompted by the impending 2004 budget and a concern that this would change the rules in relation to non-domiciled persons becoming susceptible to CGT, the Settlor sought further advice from a specialist tax accountant and lawyer (referred to as "H" in the judgment). The Settlor was advised that a trust which provided him and his wife successive life interests would be the appropriate way to protect his assets from CGT charges and that a discretionary trust would not be a good idea.

The Settlor instructed H that he wished to proceed to transfer €7.5m of foreign securities into trust with the intention of protecting those assets from potential CGT charges whilst being IHT neutral. H instructed the original Trustee to proceed with a "transfer to a discretionary trust" in error. He should have referred to an interest in possession trust as that was what was in contemplation. The Settlor, with the assistance of the original trustee, successfully executed all the relevant trust documentation and set up a discretionary trust for the benefit of the Settlor and his family. The Settlor being unfamiliar with trust terminology did not notice the mistake. By establishing a discretionary trust, the Settlor became subject to an immediate 20% IHT charge.

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