Trustees and their advisors could be facing more legal action against them following a decision made by the UK Court of Appeal’s decision last month, warns the private client law firm Boodle Hatfield.
The Court of Appeal overturned a ruling dating back 35 years which protected trustees by allowing them to effectively eradicate actions they had taken that had had unforeseen adverse tax consequences – known as the Hastings Bass rule. Following last month’s decision, trustees will no longer be able to “turn back the clock” if they had made poor choices based on legal or other professional advice, Boodle Hatfield said.
As a result, the firm predicts that more beneficiaries and trustees will be seeking legal redress for tax liabilities incurred as a result of poor advice. Furthermore, trustees themselves are likely to be hauled into the courts from affected beneficiaries, the firm predicts.
“If a trustee takes action in relation to a trust fund, based on professional advice, which has adverse tax consequences, it is likely those who benefit from the trust will have no choice but to seek redress through the courts,” said Will Twidale, a partner at the firm.
“Trustees will also seek redress for what they might perceive to be bad advice, or lack of advice, with regards to tax consequences of trustees’ proposed actions. Professional advisors can expect to see an increase in claims against them.”
Of course, one consequence of the Court of Appeal ruling is that insurance premiums for professional advisors will shoot up – an added expense which few firms will relish the prospect of.