Appointment out of a Discretionary Trust


#1

My client who is the executor of his father’s Will is asking for advice on how best to ultimately deal with the distribution of the estate. Under father’s Will following a couple of specific bequests there is a Nil Rate Band Discretionary Trust then remainder to spouse for life with ultimate beneficiaries being my client and his two siblings. There is actually no IHT issues where the deceased’s estate is concerned as this was the deceased’s second marriage and on first marriage everything passed to the deceased so we have use of this transferable nil rate band and the estate will not exceed £650,000. Apparently the current spouse has sufficient assets to maintain herself in her own right and it is likely that the house will be sold as she is wanting to downsize. The house is owned 50/50 by the current spouse and the deceased. Basically they want to wind up the discretionary trust but with the trust fund passing to the deceased’s three adult children rather than the spouse. Is it possible for this to be done simply by a Deed of Appointment (there are minor beneficiaires in the discretionary trust). I realise this would need to be discussed with the current spouse and she would probably need to obtain separate legal advice on her own inheritance tax position - maybe an appointment to her on an IPDI might be more beneficial? She has her own children and so my clients are basically wanting to secure their interest in their father’s share of the property. I would be grateful for any advice on this and apologise if these seem like basic questions it is the first time I have had to deal with this on my own!

Paula Parkin
Kitching Walker


(Kamlesh Samji) #2

Paula,

A couple of points to look out for firstly. Look at the wording of the will to see if just the Nil Rate Band passes to the DT or if the Transferable Nil Rate Band also passes there too. This will have a massive effect on which way you decide to go as the amount passing to the spouse’s ‘residue for life’ could be reduced by up to £325,000 and the trust increased by that amount.

Notwithstanding that, at the end of the day, if it is a Discretionary Trust, the trustees have just that, total discretion. I don’t believe it is necessary for the spouse to obtain independent legal advice, (that would be required, maybe if it was an appointment out of an IPDI). However, it may be courtesy to have that chat to avoid any bad feeling moving forward.

Also remember that any appointments within 2 years will be read back to the Will, although if appointing to non exempt beneficiaries, this won’t change the tax position of the deceased’s estate.

Kamlesh Samji
KRS Estate Planning