Appointing out of an interest in possession Will trust


(jerome.dodge) #1

We are administering an estate where the deceased husband created a life interest Will trust in favour of his widow consisting of cash assets substantially above the nil rate band. The death occurred only a few months ago and the estate is still being administered. The Will contains overriding powers of appointment and the widow does not want to benefit from the trust. Is there anything to prevent the trustees immediately appointing the trust fund to the remaindermen (or the widow surrendering her life interest), or does a period of time need to pass and/or assets be transferred to the trustees before the trust is brought to an end to avoid automatic reading back into the Will for IHT purposes?

I realise that an intervening interest in possession prevents such reading back into the Will, so the question really is whether the interest in possession needs to be in operation for a period of time in order to achieve this.

Jerome Dodge
Blanchards Bailey LLP


(Paul Saunders) #2

As the widow has been given a life interest, the exercise by the trustees (or executors) of the power to determine that life interest will result either in a PET or a chargeable lifetime transfer by the widow (as s.144 IHTA 1984 cannot apply).

The widow could extinguish her life interest by deed of variation or disclaimer, relying on s.142 IHTA 1984. If the disclaimer route were to be used, this should be done sooner, rather than later, to reduce the potential for HMRC to argue that she must have received some benefit under the life interest.

If there is a continuing trust following termination of the life interest, and a deed of variation is used, the deceased will continue to be the settlor for both income tax and capital gains tax purposes.

Paul Saunders