Close Trustees (Switzerland) SA v Vildosola


Reference:
[2008] 10 ITELR 1135; [2008] WTLR 1543

Date:
9th June 2008

Court:
High Court

Comment:

The claimants were the trustees of an English-law trust who were being sued by the life tenant in California for breach of trust, negligence and fraud because her income had been substantially diminished. The trustees were defending the claim but, if successful, the California court would not make an order for the costs of the claim against the life tenant. The trustees would instead be entitled to take their costs from the trust fund (which was ample for the purpose). The trustees raised the question, however, whether those costs should or might be held ultimately to fall on income and not capital and, if so, whether they should be making a retention out of the income otherwise payable to the life tenant, aged 76.

 

Held:

The trustees had power to make a retention out of income, both under the general law and under the particular trust instrument. Whether it would be reasonable for them to exercise the power (they had not surrendered any discretion they had to the court) depended on various factors, including the uncertainty whether the costs would be held to fall on income or capital, the likely amount of the costs, the life tenant's needs and her life expectancy. On the facts, it would not be reasonable to exercise the power of retention out of income.

 

The power of trustees to make a retention out of trust assets to meet a known or possible liability is well established. What was new in this case was the need to consider the burden of a retention as between income and capital. Making no retention would have the consequence, if the life tenant did not live for long enough, that capital might end up bearing the costs even if it were eventually held that they ought ultimately to be borne by income.

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