Keeping it in the family: learnings from Marcus v Marcus

Ostensibly, Stuart and Patricia Marcus and their two children, Jonathan and Edward, were an archetypal nuclear family – mum, dad and two children. However, in a Dickensian turn, Patricia told Edward in 2010 when he was aged 32 that his true father was Sydney Glossop, a partner in a law firm in Norwich. On discovering this plot twist a decade or so later, Jonathan decided to apply to the court for a determination that Edward was not a beneficiary of a trust Stuart settled in 2003 for his “children” (and certain others), on the basis that Edward was not Stuart’s biological son.

Stuart originally made his wealth by manufacturing and selling toys. He then ventured into buying and leasing investment properties in England, and later in Germany, a venture in which Jonathan played a major part. By the time of the trial, the family business assets were held primarily in two holdings companies, with multiple subsidiaries.

A large proportion of the shares of these holding companies were held in the discretionary trust Stuart settled on 29 November 2003 in favour of a class of beneficiaries which included “the children and remoter issue of the Settlor” and their spouses, as part of a scheme to mitigate tax. Patricia settled a similar trust, but that is not relevant to these proceedings as there is no doubt both boys were her biological sons. At the time the trust was settled – and, indeed, until his death in 2020 – Stuart believed that Jonathan and Edward were both his own sons by blood.

The judgment explains that there had been major disagreements between Edward and Stuart and Patricia for many years. Relations between Edward and Jonathan were also poor. In 2019, the shares of one of the family’s subsidiary companies were sold to Jonathan without Edward’s knowledge, and later the assets of another (the original toy company) were transferred to a company Jonathan controlled.

The trustees of Stuart’s and Patricia’s settlements included Jonathan and Edward. In a prior claim brought by Edward in 2021, Edward sought Jonathan’s removal as a trustee of both trusts. The outcome of these proceedings was that the trustees should resign in favour of an independent trustee, although this direction had yet to be implemented by the inception of the current proceedings. Patricia provided witness evidence in these removal proceedings in which she described Edward and Jonathan as “my sons”.

Jonathan came to learn of his mother’s claim that Mr Glossop was Edward’s father in the Spring of 2023. Seven weeks later, he issued this claim.

The court was asked to determine eight issues between the parties, but the two from which all the other issues flow are (1) “Is the court satisfied on the balance of probabilities that Edward Marcus is not Stuart Marcus’ biological son?”, and, if not, (2) “Does the word “children” in the Settlement include stepchildren?”, an issue which turns on the legal interpretation of the words in the settlement.

It is not necessary to spend too much time here on the first, as it is an issue of fact rather than of law. In summary, the starting point is that there is a presumption that a child born during a marriage is the child of the husband and, further, the fact Stuart is named as Edward’s father on his birth certificate provides prima facie evidence of his paternity. Master Marsh rejected this analysis for the following reasons. First, in giving evidence in these proceedings, Patricia moved away from the position she took in the removal proceedings, and contended that Edward was in fact Mr Glossop’s son. Second, expert evidence provided in a DNA sampling report concluded that “It is 25 times more likely that [Jonathan] and [Edward] are related as half siblings than if they are related as full siblings”. In consequence, Master Marsh found on the balance of probabilities that Stuart was not Edward’s biological father. He also found that Jonathan was most likely Stuart’s biological son.

The second issue requires more attention. A large proportion of the judgment is devoted to examining the principles of contractual construction. Master Marsh explained that the test for the court is to take the natural meaning of the relevant word or phrase (ie “children”) and to consider what a reasonable person in possession of the facts and circumstances known or assumed by the parties at the time that the document was executed, and appreciating the overall purpose of the clause and the contract, would understand the parties to have meant by it. As the settlement deed was a unilateral document, it is only Stuart’s understanding and intention which matters.

In 2003 when the settlement was executed, it was known that Stuart was unlikely to have any further children. He had created a successful business that he had founded. He had a family with two sons who had reached their early twenties. There was no reason why Stuart should have wanted to have treated differently or to have benefitted any child or children other than Edward and Jonathan.

In the face of authorities which provided compelling evidence for the proposition that “children” does not include stepchildren, Master Marsh found the surrounding circumstances pointed overwhelmingly in favour of a wider meaning than biological child (ie which included Edward), and that a reasonable person in knowledge of the relevant facts would readily conclude that when using “children” Stuart intended this word to be understood as meaning Edward and Jonathan; and not “Edward and Jonathan provided they are in fact my biological sons.” In consequence, he said that Edward was a beneficiary of Stuart’s settlement.

Key considerations for advisers and trustees

The importance of the settlor's intentions

A key factor in this case was the settlor's intentions. Who had he meant to benefit and how? His intentions became a key factor in the interpretation of "children". This underlines the importance of taking detailed instructions about the settlor's plans and intentions for the trust at the outset, ideally clearly recording those intentions in a detailed letter of wishes. Advisers and trustees can greatly assist with this process, helping settlors to imagine and express their intentions for the trust into the next generation in expected and unexpected circumstances.

Navigating complex family dynamics

Although the facts of this case were unusual – the settlor was not aware of the paternity issue during his lifetime – it does illustrate the need for advisers and trustees to properly understand and explore the often complex facts of the modern family, and to be unafraid to double check the legal position if unsure. By way of example, if the settlor or beneficiaries have married outside the UK, it will always be worth double checking the legitimacy of the marriage (Jerry Hall and Mick Jagger's marriage being a famous example of the cost of getting this wrong). Similarly, although requiring sensitivity, it may be important for trustees to be sure that where children are born via surrogacy or other methods, all the right legal steps are taken in the right jurisdictions, bearing in mind where the surrogacy takes place, where the family live, and the governing law of the trust.

Flexibility in adding beneficiaries

Advisers and trustees should discuss with settlors whether it would be appropriate to include a power to add beneficiaries to deal with unexpected situations where normal drafting and definitions might not fit with the family's fact pattern in the future. Understandably, settlors can have concerns over the possible breadth of a power to add beneficiaries (the facts in the long running Grand View v Wong case are an example of a power to add beneficiaries applied to produce an extreme result). This can be managed, however, with an explanation in the letter of wishes covering why the power is included and the sorts of situations in which the trustees might consider using the power (typically in a trust which does not include spouses in the class, many settlors would want it to be used to add a widow/widower if a beneficiary spouse dies young, leaving young children). Another good option is to have the power to add beneficiaries exercisable only with the consent of a protector or other trusted power holder.

Addressing narrow beneficiary definitions

When the definitions of beneficiaries are too narrow and do not reflect the modern realities of families, this issue should be considered and addressed early, ideally before any family disagreements arise. Open communication and a clear understanding of the trust terms and their practical implications are essential. In some cases, it may be appropriate to consider a court application to resolve the issue. Options include a rectification application if the drafting contradicts the settlor's stated intentions, or a blessing application if trustees are making a significant decision to include family members outside the class, which ultimately supports those within the class. For example, including a beneficiary's illegitimate children outside the class may still align with the interests of the parent within the class, even if it appears contrary to the settlor's original intentions.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, December 2024