What happens if you find a mistake in a trust deed? And, how to change it

Emma Ironside, Senior Associate in our Bristol Litigation team specialising in contentious wills, trusts, probate matters and property disputes. In this article she looks at how to remedy a mistake in a trust document.

Trusts are often used in financial planning or in connection with estates and cannot simply be amended once a trust deed has been executed. As trusts become more commonplace, we are seeing that, all too often, insufficient attention is paid to the detail of how to set one up which can lead to errors in the drafting. This is especially the case with trusts that are set up using standard forms where, for example, a tick box is missed or some information has been left out.

So, what happens if there is a mistake in the drafting and the trust is set up incorrectly?

The first step is to categorise the nature of the problem to determine what remedy would be available to correct the trust deed.

Where the mistake relates to the terms of the trust, this could call for either construction or rectification of the trust deed. Where the mistake is in relation to the effect of the trust deed, then the parties may be seeking to rescind (set aside) the trust deed.

In order to obtain any remedy, an application to the court has to be made and the Judge hearing the case has a wide discretion when deciding how to deal with it. Unfortunately, this means that there is no quick and easy fix.  Below we will discuss ways to rectify incorrect wording of a trust deed in a little more detail:

Construction – where the terms of the trust are ambiguous or lack clarity

First look at the rules of interpretation applicable to trust. If application of these rules leads to an unambiguous construction and the trustees and beneficiaries are happy to accept this, then this could resolve the mistake.

However, often there are different ways a trust deed could be construed and trustees prefer to protect themselves from future litigation by obtaining a decision from the court in relation to the proposed construction of the trust deed.

Rectification

A trust deed can be rectified by an order of the court if it can be demonstrated that one of the following is true:

• There is convincing proof that the trust deed as drafted fails to establish the true intention of the person who set up the trust, known as ‘the Settlor’
• There is a flaw in the trust deed as drafted which results in the deed not giving effect to the Settlor’s intentions
• The parties are able to evidence what the specific intentions of the Settlor were. This will have to be strong evidence that gives some level of certainty to the court that the trust deed contains a mistake
• There is an issue capable of being contested between the parties affected by the mistake

The parties would need to apply to the court for an order to rectify the trust deed and satisfy the court that there was a genuine mistake. This is easier in relation to lifetime trusts where the parties agree to the rectification but can be much harder in cases where the Settlor has died.

Typically, these applications are a matter of ‘friendly litigation’ where all parties agree that the trust deed should be rectified. However, if one party disputes the rectification (usually because they benefit as a result of the mistake),  this can lead to a hostile dispute about whether the mistake was genuine or whether parties are seeking to change the trust deed to suit themselves.

Regardless of whether the claim is disputed or not, many applications for rectification fail because the applicant has failed to address the distinction between a mistake in the words of the trust deed and its subsequent consequences.  Any application for rectification can only ask the court to rectify the way the trust deed was recorded.  If the mistake is in relation to the formulation of the trust then this cannot be remedied by way of rectification.

The result of an order for Rectification is that the trust deed can be read as if it has originally been drafted as rectified. This means that any order for rectification will be retrospective in effect.

Conclusion

If there is a mistake in a trust document then careful consideration needs to be given as to how the trustees should proceed. This will very much depend on the circumstances of each case and any remedy is at the court’s discretion. This means that the outcome is never certain and great care should be taken when making the application to ensure that it has the best chance of success.