Trusts and the modern family

Will Burnell, counsel, Mourant, 15/09/2022

Will Burnell, Mourant

This year marks the 50th anniversary of the first UK Pride parade in 1972. To celebrate how far the movement has come, the Channel Islands is hosting its own Pride events throughout September. 

Families today are more diverse, and it is more widely accepted that a family structure doesn’t have to be a mum, dad, son, and daughter. But how are the courts responding to these societal changes?

Describing family relationships in trust documents

It’s important to understand how terms which describe family relationships are used in trust documents, especially as the courts’ approach to how those terms are interpreted is constantly evolving.

Common examples include 'spouse', 'children', 'issue' and 'descendants', but the following comments apply equally to all expressions which describe a familial relationship between two individuals.

The changing landscape

Traditionally, the law could be very restrictive. For example, the meaning of 'children' was confined to legitimate children and illegitimate, legitimated, and adopted children were excluded.

The good news is that as social values and the concept of the family have changed, more progressive legislation has been introduced in certain countries to widen the meaning of 'children', often to include illegitimate and legitimated children, whether their parents are in same or opposite sex marriages or civil partnerships. Children born via assisted reproduction methods, and adopted children, may also now be included.

Likewise, statutory changes have resulted in the term 'spouse' being taken to encompass individuals who are in a same sex marriage, but not civil partners.

Despite this it is still open to settlors of trusts to set out in the trust instrument how they wish these terms and others to be interpreted. A settlor could for example state that references to 'children' should include or exclude illegitimate persons.

The approach of the courts

Human rights legislation and case law have had a significant impact in favour of treating all individuals equally and there have even been instances of the rules being applied retroactively when interpreting trust documents. Although they are exceptional, these cases introduce another dimension to questions around how terms which describe family relationships, particularly in older trust documents, should be interpreted.

Over the last few years there have been a number of instances where the courts, in trust law jurisdictions such as Jersey and England, have had to grapple with the issues which arise in this area, particularly where the trusts in question predate the statutory developments noted above. In general, the courts have sought to reflect changing social attitudes and values and aimed to limit the potentially discriminatory effects of the terminology used in older trusts.

Contemporary court decisions

In one of the Jersey cases the class of beneficiaries of a trust was widened to include same sex relationships, illegitimate and adopted children on the basis that it would be beneficial to the family as it would maintain family harmony. Contemporary public policy considerations were also taken into account and the court decided that these factors outweighed the importance it should attach to the settlor's wishes, which were out of step with modern norms.

Very recently the English High Court interpreted the term 'spouse' to include same sex spouses and civil partners. In that case, which concerned an employee benefit trust, there wasn’t much evidence of the settlor's intention of how the relevant terms should be interpreted so the court looked at the commercial purpose of the trust and found that the settlor wished to incentivise and reward the contributions of his employees. He also wanted to provide a mechanism for their dependants to benefit in appropriate circumstances, regardless of whether those individuals fell within the traditional meaning of the term 'spouse'.

The court was also asked to consider whether the term 'children' should include stepchildren, but it found no basis on which it should. That approach would have marked a significant departure from the common law position and there was nothing to suggest the settlor had intended for stepchildren to benefit. The court was comfortable that its approach on this issue was not discriminatory as children and stepchildren are, in relational terms, fundamentally different. 

Considerations for settlors and trustees 

Now more than ever, settlors and trustees need to be aware of issues which surround how terms which describe family relationships are used in trust documents.

In particular, it is important for settlors to be aware of how the meaning of terms such as spouse, wife, husband, children and issue will be interpreted so they can consider whether to include bespoke definitions which are consistent with their intentions in order to change the default rules.

Settlors should also consider recording their views in letters of wishes and equipping their trustees with powers that enable the relevant provisions to be amended in view of any future changes to those wishes and/or evolving social attitudes.

Particular care should be taken when including any provisions which treat individuals differently on the basis of characteristics such as gender or marital status.

Likewise, trustees should keep their trust documents under constant review and consider exercising their powers to tighten or broaden provisions as appropriate, providing that is for the benefit of the beneficiaries. Trustees may also need to apply to court for assistance if their powers don’t allow them to achieve the desired outcome.

 While good progress is being made to make the language in trust documents more universal and inclusive, and the courts' approach more progressive, there is still more work to be done by law makers and the judiciary. As practitioners, we can support positive change by identifying and discussing these issues with our clients, advocating against discrimination and doing our best to ensure everyone is treated equally and feels empowered.

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