Although a trustee is personally responsible for the actions they take, the law is not so harsh as to prevent a trustee who makes an innocent mistake from rectifying it.
In a recent case, a ‘receiver’ for a mentally impaired man (her husband) was appointed by the Court of Protection: a receiver in this context is effectively a trustee responsible for the affairs of another person. The receiver made a settlement of her husband’s assets without giving full consideration to the Inheritance Tax (IHT) consequences of her actions. As a result, an IHT liability ensued.
The receiver sought to have the settlement revoked, as had she been in possession of all the relevant facts at the appropriate time, she would not have made it. HM Revenue and Customs opposed the application.
The court had sympathy for the receiver and agreed that the settlement should be made void.
This case shows the importance of making sure that sufficient care is taken when such decisions are made. Although the end result was the avoidance of the IHT liability, the case will inevitably have involved a great deal of time and considerable costs, both of which were avoidable had the matter been given full consideration at the outset. In addition, in such cases any IHT mitigation exercise would have to be reconsidered after the original situation was restored, which could well have adverse consequences on the family’s IHT position.
If you are a trustee, we can advise you on all aspects of trust and tax law.