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Breaking Trusts Via a Common Intention
In the recent case of Nilsson and another v Cynberg [2024] EWHC 2164 (Ch) the High Court have confirmed that a common intention constructive trust (CICT) can vary an express declaration of trust.
What is a CICT?
These trusts are a method to determine beneficial ownership based on the intentions of the parties regarding the ownership of property even if those intentions were not formally documented.
There are two fundamental elements of a CICT being:
- There was an agreement or common intention as to an asset, which can be demonstrated either expressly or impliedly; and
- The intention was relied upon and one party has acted to their detriment on this basis.
Facts of Nilsson and Another V Cynberg [2024]
In 2001, Stuart Cynberg and Collette Cynberg purchased a property that they held on trust as beneficial joint tenants and they declared this to be the case in the TR1. Beneficial joint tenants means that both owners hold the equity in the property 100% indivisibly, such that the surviving tenant inherits the other share by survivorship. In 2006, the couple married and subsequently separated in 2009 at which time they discussed finances.
It was agreed by both parties that Mrs Cynberg would own the property solely, provided that she left the property to their children. As a result of the agreement, from 2009 Mrs Cynberg alone paid for all of the property expenses and also used money from her inheritance in 2014 for works on the property.
The couple then divorced in 2018, and shortly after Mr Cynberg was declared bankrupt in October 2018.
Mrs Cynberg sought declaratory relief, stating that she solely owned the beneficial interest in the property. She asserted that the agreement and discussions following their separation had given rise to a CICT or proprietary estoppel which in turn had varied the declaration of trust in the TR1.
The Trustees in Bankruptcy’s defence, however, was that the express declaration of trust was conclusive and could not be overridden by an informal agreement. Therefore, no CICT could have arisen and additionally there was no proprietary estoppel. Mr Cynberg had therefore retained a 50% beneficial interest in the property.
Legal Argument
In the first instance, the Judge declared that Mrs Cynberg was the sole beneficial owner.
This was appealed by the Trustees in Bankruptcy on four grounds. However, the following two grounds were of particular significance:
First Ground of Appeal
Required consideration of whether a “subsequent agreement” to vary an express declaration of trust must comply with the requirements of S.2 of the Law of Property (Miscellaneous Provisions) Act 1989 or whether a CICT sufficed.
The Deputy High Court Judge concluded that a subsequent agreement to vary is not limited to one that complies with statutory formalities and may include a CICT.
Second Ground of Appeal
The second ground was that the extent of detriment suffered by Mrs Cynberg was insufficient to give rise to proprietary estoppel.
The High Court held that taking over the mortgage payments all associated bills and the home improvements was sufficient detriment.
Courts Conclusion
The High Court dismissed all four grounds of appeal and upheld Mrs Cynberg as the sole beneficial owner.
Key Takeaways
This case is important as it adds to the case law supporting that an express declaration of trust can be varied by subsequent agreements including CICTs.
In practice, these cases turn heavily on the facts particularly that in addition to providing evidence that there was a common intention, it must be demonstrated that an individual has acted to their detriment in reliance of the intention.
Constructive trusts are a complex area and if you are concerned about any such variation we recommend that all agreements/variations are formally documented.
If you have any queries relating to this topic, please contact Ben Rosen or Eleanor Catling at Quastels LLP.
Marcus v Marcus (2024): Trusts, Family Secrets and the Power of Intention
Overview of the Case
The Marcus v Marcus case (EWHC 2086, 2024) essentially relates to a dispute over the status of Edward Marcus as a beneficiary of a family trust created by his legal father (the deceased). The trust, settled in 2003, was established as an arrangement designed to postpone capital gains tax in relation to shares in a family company. It listed the deceased’s (or settlor’s) ‘children and remoter issue’ as discretionary beneficiaries. The dispute arose when it was revealed that Edward was not the biological son of the deceased, though he had been raised as the deceased’s son. It is worth noting that the deceased never knew this.
Jonathan Marcus, Edward’s brother, discovered this fact in 2023 after their mother had revealed it to Edward years earlier in 2010. Following a family fallout, Jonathan took steps to remove Edward as a beneficiary.
Legal Argument
Jonathan’s key argument rested on the interpretation of the term ‘children’ in the trust deed. He argued that since Edward was not biologically the settlor’s son, he should not qualify as a beneficiary. Jonathan asserted that the trust’s language implied a biological connection and that Edward’s inclusion was improper because the deceased was unaware of Edward’s true parentage at the time of settlement.
Edward, on the other hand, argued that the deceased had always treated him as his son, raising both him and Jonathan as brothers without distinction. He claimed that biological parentage was irrelevant to the settlor’s intention and that he should remain a beneficiary due to the deceased’s clear intention to provide for both sons.
Court’s Conclusion
The court rejected Jonathan’s application, maintaining Edward’s status as a beneficiary. The ruling highlighted that in trust law, the settlor’s intention is paramount when determining beneficiary eligibility. In this case, the court emphasised that the deceased had consistently treated Edward as his child and had shown no intention to exclude him based on biology. The wording of the trust, which referred to ‘children’ without specific qualifications, was interpreted in the broader context of the family dynamic, in which Edward had been accepted as part of the family unit.
The court concluded that the biological connection was irrelevant to the deceased’s intention at the time of the trust’s creation. The trust was constructed with the understanding that both brothers, Jonathan and Edward, were equal in the eyes of the deceased. Consequently, Edward remained a discretionary beneficiary, and Jonathan’s attempt to remove him was denied.
Key Takeaways
- Settlor’s intent is crucial and the courts will look beyond strict legal definitions of family relationships to determine a settlor’s true intention, especially in cases where family dynamics are more complex;
- Clear definitions in trusts to avoid future disputes, and the use of clear and precise language when defining terms like ‘children’ or ‘issue’. Where non-biological relationships are involved, explicit wording should clarify the settlor’s wishes; and
- Being aware of the potential for family disputes, although in this case matters were complicated by the settlor’s ignorance as to biological status. However, generally speaking, trusts involving non-traditional family structures or unresolved familial tensions can give rise to disputes and advice should be sought to overcome any perceived or future challenges.
This case ultimately highlights the importance of considering family dynamics and the settlor’s intention in trust law, particularly where biological connections do not reflect the family unit’s reality.
For Private Wealth & Tax advice and services, please contact Ben Rosen via our contact form below.
Tourist Today, UK Taxpayer Tomorrow?
A UK Standard Visitor Visa typically permits individuals to stay in the UK for up to six months at a time, and it is often mistakenly assumed, that you will therefore not become UK tax resident as long as you do not exceed this period. This common error arises because many countries, such as the UAE, have straightforward day count thresholds for becoming a tax resident, leading individuals to incorrectly apply the same criteria to the UK.
However, this approach is unlikely to be sufficient for those who visit the UK frequently; commonly because they have acquired property in the UK and spend extended periods visiting, and/or have children who attend school in the UK.
Visitors should approach this exercise cautiously as the implications of becoming UK tax resident are potentially substantial, by inadvertently bringing non-UK source income and gains into the UK tax net.
Statutory Residence Test
The UK’s test for determining tax residence is set out in the Statutory Residence Test (SRT) which conclusively determines whether an individual is UK tax resident in any given tax year.
It is primarily based on physical presence in the UK and does not consider any test of habitual residence (generally, this is a test which determines the country in which an individual has established the centre of their personal and professional life, for legal purposes) or the intention of the individual, when determining whether they become UK tax resident.
The well-advised visitor may be aware that the number of days they may spend in the UK without becoming tax resident, can be affected by the number of connections they have to the UK. Under the SRT, these connections are known as ‘ties’ which are as follows:
- Family tie;
- Accommodation tie;
- Work tie;
- 90-day tie; and
- Country tie (this tie only applies to individuals who have been a UK resident in at least one of the previous three tax years).
Each of the ties has its own set of conditions or qualifying criteria attached to them. In essence, individuals with few or no ties are more freely able to spend time in the UK without triggering UK tax residence.
In contrast, individuals who for instance own UK property, perhaps spend time working in the UK, or who in previous tax years, spent 90 days or more in the UK, will have these ties which significantly decrease the threshold number of days they may spend, without becoming UK tax resident.
An Example
Ali is a non-UK national, employed as a consultant who often works remotely. Ali has a spouse and children who reside in the UK. He also jointly owns a property in the UK with his spouse, where his family resides in. Ali has also spent over 90 days in the UK in each of previous last three tax years. Ali has not been UK tax resident in previous years.
Ali therefore has the following ties:
- 90-Day Tie: Ali has spent more than 90 days in the UK in previous tax years.
- Accommodation Tie: Ali owns a property in the UK, which is available for his use.
- Family Tie: Ali’s immediate family (spouse and children) live in the UK.
With three ties, Ali could spend up to 90 days in the UK in the current tax year without triggering UK tax residency, according to the SRT.
If Ali were to acquire a fourth tie in the same tax year, i.e. the ‘work tie’ on account of having spent the requisite amount of time working in the UK, his days would be severely limited the following tax year, to 45 days, if he wished to remain non-UK resident.
The above example shows that monitoring your UK tax residence goes beyond simple day counting, and it is important for individuals to carefully observe time spent in the UK, particularly in circumstances where they may have ties.
To discuss any of the points raised in this article, please contact Ben Rosen or fill out the form below.