On May 14, 2021, the Royal Court of Jersey delivered a contemporary judgment “In the Matter of the May Trust”, reflecting the modern world’s acceptance that inherited wealth is increasingly linked to purpose and values of a family, fiscal morality and public reputation.
This case is of interest to generators and beneficiaries of private wealth, trustees and custodians of private wealth and their advisers. It illustrates how courts can take a more flexible approach to interpreting existing trust law, allowing trustees to work with families to achieve family philanthropic goals.
In the May Trust case: the facts
The case involved a trust worth around £150million and applicable Jersey law. The beneficiaries of the trust were the primary beneficiary, his family and the family’s charitable foundation.
The court was asked to consider a proposal to distribute to the primary beneficiary of £75million for him to donate later to the foundation. The trustees could have made this transfer directly to the foundation as the beneficiary without triggering any tax liability, however, it was the primary beneficiary’s request that the distribution be made directly to him instead. The primary beneficiary could then, as a UK taxpayer, make the transfer to the foundation in such a way as to deliberately trigger personal UK tax liability.
The court noted that it was unusual for them to be asked to approve an arrangement that facilitated the payment of legitimately avoidable tax. However, the “well-established” principle that the role of the court is only to focus on the law of trusts and not on the resulting tax liabilities could be overturned and applied here – “Just as the court has no function of ensuring that appropriate amounts of taxes are paid, nor is it our function to ensure that the appropriate amounts of taxes are not paid.
Trusts and the evolving concept of “Benefit”
The Court accepted that: – The advantage is not limited to a financial advantage but can also include social and educational advantages for the beneficiary in question; – May include the application of the trust fund to fulfill what a beneficiary believes to be their moral obligation.
Tax morality intertwined with family purpose
It was significant in this case that the family agreed to a memorandum setting out their “family values and ethic of philanthropic giving.”
During this exercise, the family made it clear that they believed it was appropriate for UK tax to be paid on part of the sum, as it would enable the government to provide a ‘wider social benefit’.
Making the proposed distribution and incurring the unnecessary tax burden was therefore considered to be for the benefit of the primary beneficiary. The family was united in their agreement to have the distribution done in this way.
How does this relate to larger trends?
While the desire to pay unnecessary taxes may not be common, the value of promoting “wider social benefits” is clear today.
In this case, the court made it clear that previous case law had focused too much on purely financial factors when determining the meaning of the term “benefit”. Instead, the fulfillment of the moral obligation felt personally by a recipient should be treated as benefiting them.
The judgment shows a significant evolution in trust law that reflects modern attitudes, particularly where wealth management intersects with philanthropy and taxation.
Wealth generators and beneficiaries of assets held in estate structures for asset protection purposes should be reassured by this evolving area of law that allows them to achieve their goals of responsible personal philanthropy/taxation.
For trustees and private wealth custodians, they need to be reassured by this evolving law and when considering investing in environmental, social and governance (ESG) areas, and the extent to which they need to take into account the considerations non-financial when making responsible investments. It can also indicate the direction of travel when it comes to those hot topics.