PUBLIC GUIDE 4 STRICT SETTLEMENT

Transcription

1 PUBLIC GUIDE 4 STRICT SETTLEMENT Introduction Land which is subject to a settlement is known as settled land. A settlement is a disposition of property by deed or will so that successions of interests are created. A settlement may make the land virtually inalienable unless the principal beneficiary can be persuaded to bar the entail with the agreement of the settler. The land can then be sold, mortgaged or otherwise dealt with. In Bermuda the Disentailing Act 1901 is designed for this purpose, but apart from this there are no statutory laws supporting the creation and sustainment of strict settlements. The most common forms of family settlement are as follow: A is the landowner. B is the trustee. C is A's eldest son. Example 1 A dies. In his will A has left the property to C for life, with the remainder to C s heirs upon C s death. The trust will be administered by B, who is usually the family attorney or a bank. Example 2 During A s lifetime he grants himself a life estate. Upon his death, C will inherit a life estate. Upon C s, death the remainder will go to C s heirs. Again, the trust will be administered by B as above.

2 In Example 2 above, A holds a lifetime interest in the land and any interest created during his lifetime will come to an end when he dies. He can lease or mortgage the estate. He cannot sell it, because C expects to inherit, and therefore has an equitable interest. When A dies, C will come into possession of the land for the duration of his own lifetime. After C dies, it will pass to C's son, daughter or other heir. The land is therefore 'tied up' for two generations to come. This assumes that A and indeed C will have children either now or in the future. The settlement could therefore fail if there are ultimately no heirs to inherit the estate. Figure 1: Examples 1 & 2 represented by diagrams. A dies A Conveys his estate to B as trustee C Inherits a life estate under A s will A Becomes a life tenant Mortgage for the duration of his life Lease for the duration of his life Mortgage for the duration of his life Lease for the duration of his life C s heirs Inherit when C dies C Inherits when A dies C s heirs inherit when C dies 1

3 The Role of the Trustee under a Settlement Under the terms of the settlement, the trustee is the legal owner of the estate on behalf of the family. They were responsible for ensuring that all receipts and payments from the estate were paid to the various members of the family who were entitled to them. The diagram shows the complex relationship between trustees, members of the family, rent and payment in a typical settlement. 2

4 Treatment of Settlements under Land Title Registration Under the system of Land Title Registration system (LTR) that is to operate in Bermuda, it is not intended that any freehold estate less than the fee simple should be capable of registration. This will exclude the registration of life estates and fee tail estates. However, it is recognized that some land will still be held under settlements. This is mainly due to the ability of the settlors under a settlement to arrange affairs within a family context so as to avoid stamp duty on the death. The Stamp Duties Amendment Act 2005, which allowed the Primary Family Homestead Designation, has rendered this avoidance mechanism largely unnecessary. There is now a significant estate planning concession through the Primary Family Homestead Designation. The designation allows a property owner to register one property as a primary family homestead so that, following their death the designated property can pass to the beneficiaries of their estate without attracting stamp duty. Various types of settlements created prior to the 2005 Act will still be in existence. It is not intended that land subject to the more limited estates that arise under such settlements should be excluded altogether from the registration system. Under LTR legislation the remainderman will be registered with the title of fee simple absolute in possession and to register the life tenant for a term of 120 years determinable upon death. Thus we are proposing to convert the life interest into a 120 year lease. The following sets out how we will deal with more complex types of settlement. (1) Settlement where there is more than one successive life estate Each identifiable person in existence who holds an estate under the settlement is to be entitled to apply for registration. In Example 2 above, C s heirs will as remaindermen be entitled to be registered with the freehold estate (fee simple absolute in possession). C will be entitled to be registered with a leasehold estate of 120 years plus 1 day. This estate is determinable by C s heirs upon notice to the Registrar of the death of C. A s estate, which will be the immediate estate in possession, entitles A to be registered with a leasehold estate of 120 years determinable by C upon notice to the Registrar of the death of A. Therefore, each successive owner of a life estate is to be treated, on registration, as owner of a leasehold estate holding under a lease for 120 years. The lease so held may be brought to an end following the death of that life tenant upon application by the person holding the estate that is immediately reversionary to the lease. Each lease will be held on the same terms as to rent and waste, but for a term that exceeds by one day the term of the lease held by the preceding life tenant. The lease is to be subject to the lease held by the preceding life tenant as a sub-lease. 3

5 (2) Settlement which includes the grant of a fee tail Where the successive interest held under a settlement creates a fee tail estate in remainder and such estate can be shown to be vested in identifiable persons, upon application for registration of the successive estates the owners of the fee tail estate are to be registered as owners of the fee simple absolute in possession. Notice of the appropriate leases for life will be entered in the incumbrances section of the reversionary register in the same way as the example in (1) above. In effect, the arrangements which will apply are as if the beneficiaries of the fee tail estate had executed a disentailing deed (even if they have not) so that they are registered as owners of the fee simple estate to which they would have been entitled as a result. (3) Settlement which includes the grant of a fee tail in remainder to persons not yet born Trustees will be appointed in the place of those not yet born, such trustees to vest the estate in those persons as and when they reach the age of majority. For example, such a position could arise where A granted land to C for life, remainder to C s eldest son in fee tail, where C does not yet have a son. In that case there will be provision for a minimum of two persons (one in the case of a trust corporation, as defined in the Trustee Act 1975) and a maximum of four persons to be nominated in writing to the Registrar to act as trustees of the fee simple estate, by the person or persons who hold the estate in the land that is held by them in possession. On application for first registration of land held under such a settlement, accompanied by satisfactory evidence as to the terms of the settlement and showing that there is no-one in whom the fee tail estate is vested, and also accompanied by the written nomination already mentioned (together with confirmation in writing from the nominated trustees that are willing to act as such), the fee simple estate is to be registered with the trustees as owners, subject to appropriate lease(s) for life to reflect the interest(s) of any prior life tenant(s). If there is more than one person entitled to nominate the trustees, but they are unable to agree between them as to who is to be nominated, then the Court is to be given power to determine the question on the application of any of those persons. When registered as owners of the fee simple estate, the trustees are to hold the estate on trust to transfer it to: (i) The person who would have become entitled to the fee tail estate, once such person has become ascertainable (in the example given, when a son has been born to C), or (ii) If it becomes clear that no such person can exist (in the example given, if C dies without having a son), the person who would have been entitled in remainder or reversion on the fee tail estate having determined. 4

6 (4) What will happen to existing mortgages? As to the position of potential existing mortgages, it must be considered possible for a person holding a life estate or an estate in remainder to have created a mortgage of his estate by conveyance of the estate subject to a provision for reconveyance on redemption. If this is the case then the most likely scenario is for both the tenant in possession and the tenant(s) in remainder to have acted to mortgage their estates together (otherwise the mortgagee is likely to have viewed the security offered as less than satisfactory). However the possibility cannot be excluded of a tenant with an estate less than the fee simple in possession having individually affected a mortgage by conveyance of only his estate. The legislation will therefore allow for this by providing that, following registration of a lease or leases terminable by notice following the death of the relevant tenant for life and the freehold estate subject to the lease(s), under the arrangements outlined above, the mortgage should be converted to a charge by way of legal mortgage and entered in the register of the relevant title as a registered charge affecting the estate out of which the registration has derived. Contact information our office at landtitleregistryoffice@gov.bm Call us direct at Visit us at Victoria Hall, 11 Victoria Street, City of Hamilton HM11 How to get our forms and other guides All Land Registry application forms and guides are obtainable by visiting our office or you can download them from our website 5

7 Land Title Registry Advisory Policy We offer advice to our customers through our publications and Customer Support information and through the day-to-day handling of applications. We provide factual information including official copies of registers, title plans and documents, searches and details of our forms and fees. We provide procedural advice to explain how the land title registration system works and how to make applications correctly. This includes: advice in advance of an application, where this is requested where an application is defective, advice as to the nature of the problem and what options, if any, are available to put it right There are limits to the advice that we will provide. We cannot provide legal advice. This means that: we will not approve the evidence to be produced in support of a registration application before we receive the application apart from procedural advice, we will not advise on what action to take we will not recommend a professional adviser but can explain how to find one. We provide advice only about real cases, not about theoretical circumstances. We will not express a view on questions where the law is complex or unclear except where the question arises on a live registration application. In providing this factual information and procedural advice we will: Be impartial Recognize that others may be affected by what we say Avoid any conflict of interest. Debbie G N Reid Land Registrar Information in this guide The information in this publication is intended for the purpose of providing general guidance only and is correct at the time of publishing but may be subject to change without notice. 6