I took part in a telephone interview recently for a legal directory, in the course of which the question came up, as it does so often, about the sort of work that I see in my practice every year. While the short answer is that one of the aspects of my work that I love is the fact that it is so diverse, almost every year there is at least one example of a beneficiary family wishing to fundamentally alter the structure of their family trust.

Beneficiaries are increasingly internationally mobile; their family structures change with births, adoptions, deaths, marriages, civil partnerships, divorces and remarriages; beneficiaries fall on hard times – personal bankruptcy, corporate insolvency and creditor disputes can disrupt a family’s fortunes.

At the time the trust was settled, the settlor might have been primarily concerned with protecting young beneficiaries from the extent of their fortune and the risks that go with that and structured the trust accordingly. Years later those risks may no longer apply if the same beneficiaries are adults with established careers and families of their own; restrictions on access to wealth can instead cause frustration and occasionally, resentment. These are only a few examples of ways in which a trust structure might fall out of step with a family’s requirements.

Many modern trust deeds have wide ranging powers to change the terms of the trust, thus providing sufficient flexibility to allow some restructuring to take place. Rarely do they provide sufficiently wide powers to permit the alteration of dispositive powers or beneficial interests, particularly after the settlor has died. Nevertheless, a trustee will be allowed to depart from the terms of a trust in certain circumstances, for example:

  • with the agreement of all of the beneficiaries as long as they are all adults and have capacity; or
  • if there is only one beneficiary or there are several of full age and capacity and they all agree, the beneficiaries may call for the trust property to be paid to them or to someone else, whereupon the trusts of the settlement in respect of that property will be brought to an end.

The latter principle is commonly known as “the rule in Saunders v Vautier” and the beneficiaries are entitled to do this, even if the act of bringing the trust to an end in this way goes against the known intentions of the settlor, see Tod v Barton [2002] WTLR 469.
Tod v Barton is an interesting case for a number of reasons, principally because it upheld the testator’s choice of law, meaning that the question of the validity of a deed of variation entered into by the adult beneficiaries was governed by English rather than Texan law. The judge expressly applied the rule in Saunders v Vautier, finding that the adult beneficiaries were entitled to end or reconstitute the will trust, even if to do so would contradict the known intentions of the testator. If however the judge had found that the law of Texas governed the will, the deed of variation would not have taken effect as according to Texan law, a will trust could not be terminated before the purpose of the trust had been fulfilled.

This is all very well when all beneficiaries of a trust are adults and of full capacity but the position is rarely so straightforward. What happens if there are children among the beneficiaries or there are beneficiaries not yet born or ascertained, or there is someone among the beneficiaries who is suffering from mental incapacity? None of these categories of beneficiary is capable of giving full and informed consent to a proposed variation of the trust which will affect their entitlement under it.

It has long been accepted that the court has no inherent jurisdiction to allow a trustee to depart from the terms of a trust, save in strictly delineated circumstances, categorized broadly as salvage, maintenance and compromise cases. Focusing on the latter category, the court would have jurisdiction to sanction a variation or modification of a trust on behalf of minor, unborn or unascertained beneficiaries, if it is part of the compromise of a genuine dispute over the rights of beneficiaries under that trust, see Chapman v Chapman [1954] 1 All ER 798. There must however be ”a true compromise of disputed rights” which the court would otherwise have to adjudicate and the court has been known to take a harsh view of any attempt to disguise a variation of trust as the compromise of a dispute over rights under that trust.

The courts in the Cayman Islands approved the reasoning in Chapman in Re S Trust [1990-1991] CILR N-24a. In that case it was confirmed that the court has an inherent jurisdiction to approve a variation of trust as part of a compromise, even if it is contrary to the settlor’s intentions, as long as the compromise arises out of a “real dispute as to the parties’ rights” and the court is satisfied that the compromise will have the required benefit to the infant and unborn beneficiaries.

Section 72 of the Cayman Islands Trusts Law (2017 Revision), provides the court with a statutory jurisdiction to approve the variation or modification of trusts on behalf of certain categories of beneficiary, including those who are minors, unborn, unascertained or incapacitated. Such applications apply to “trusts whensoever arising, under any will, settlement or other disposition” save that there are different considerations (outside the scope of this article) to take into account if the application involves the variation of a protective trust. The court has jurisdiction to approve any arrangement “varying or revoking all or any of the trusts or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts” as long as the arrangement is for the “benefit” of the person on whose behalf the court’s approval is being sought. Benefit is essential and is the one fetter on the court’s discretion to approve what is proposed; without it, the court will not do so.

Benefit will be assessed on behalf of each individual beneficiary for whom the court is asked to approve the variation, per SG v Royal Bank of Canada Trust Co (Cayman) Ltd . The court will look at what is proposed as a whole. It will balance the differing interests of the beneficiaries and the benefits that each will obtain should the variation be approved. Although financial benefit is usually of primary concern, educational, moral and social benefits, including the restoration or maintenance of family harmony, will be taken into account too . Indeed, in Re H it was held that the court could approve a scheme varying a trust even if it runs contrary to the settlor’s intentions in relation to one beneficiary, provided that it benefits infant and unborn beneficiaries.

The rule in Saunders v Vautier and the jurisdiction in relation to variation of trusts is more limited in relation to STAR trusts. The beneficiaries of a STAR trust cannot act in concert to bring a STAR trust to an end. Section 104(2) of the Trusts Law dis-applies section 72 in relation to STAR trusts. This does not mean that the terms of a STAR trust cannot be varied. If the execution of a STAR trust becomes, either wholly or in part, “(a) impossible or impracticable; (b) unlawful or contrary to public policy; or obsolete in that by reason of changed circumstances, it fails to achieve the general intent of the special trust,” the trustee is entitled, pursuant to section 104(1) of the Trusts Law, to apply to court to reform the trust “cy-près,” in other words, as consistently as possible with the original intent of the settlor.

If, upon hearing such an application, the court takes the view that the trust cannot be reformed cy-près, then the trustee can be directed to dispose of the trust property as though the trust or the relevant part of it has failed. As will be clear from what is said earlier in this article, this provision is in marked contrast to applications to vary ordinary private trusts under section 72 of the Trusts Law which are of course capable of being approved by the court even if what is proposed runs contrary to the intentions of the settlor.

From time to time, the question of amendment of section 72 of the Trusts Law comes up for discussion. Approval by the court and on condition that what is proposed is of benefit to the relevant beneficiaries have been requirements for a successful variation of trust in this jurisdiction for decades and have worked very well. However, it is the case that other common law jurisdictions have introduced slightly different provisions into their variation statutes and it will be interesting to see whether, in time, the Cayman Islands legislature decides to do so too.

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Morven McMillan

Morven is a partner based in Maples and Calder's Cayman Islands office, where she is head of the Cayman Islands Trusts group. Her expertise includes contentious and non-contentious international trusts and private client work.


Morven McMillan
Maples and Calder
Cayman Islands

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Maples and Calder

Maples and Calder was formed in the Cayman Islands almost 50 years ago and today is the largest law firm in the Cayman Islands. We are also acknowledged by clients and competitors alike as being the market leader in each of our principal practice areas, in particular funds, finance and corporate.  Our Cayman office also provides, through our regulated affiliate, incorporation and registered office services.

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