Re Flower’s Settlement Trusts
Court of Appeal
Citations:  1 WLR 401;  1 All ER 462.
The settlor of a trust granted the trustees a discretionary power to use trust income during the settlor’s lifetime for several purposes, excluding anything which might benefit himself, his wife or his children. Some of the trusts granted the settlor’s wife a life interest, but only taking effect after the settlor died. This made her the remainderman.
The discretionary power was deemed void for uncertainty. This meant that the trust failed during the settlor’s lifetime. This raised the question of what happened to the trust property for the purposes of estate tax. If the trustees now held the property on resulting trust for the settlor, then estate tax was payable. If instead the wife’s interest as remainderman was accelerated (in other words, if her life interest took effect early), estate tax was not payable. The court was asked to determine which had occurred.
- Had the wife’s interest as remainderman accelerated?
The Court of Appeal held that the wife’s interest was not accelerated. The trust language did not indicate that the settlor intended acceleration to happen if the lifetime powers were held void. The trust made plain that the wife would get an interest when the settlor died and under no other circumstances.
This Case is Authority For…
The doctrine of acceleration in the context of wills means that if a testator makes a gift to B for life and C in remainder when B dies, the the courts will construe (in the absence of contrary evidence as to the testator’s intention) the gift to C to happen if B dies or if B’s interest fails to determine. So, if the trust fails before B dies, C’s interest takes effect instead of the property returning to the testator’s estate by way of resulting trust.
The court confirmed that the doctrine of acceleration can apply to lifetime settlements. However, it is normally more difficult to establish that the settlor of a lifetime trust intended the doctrine to apply.