I am dealing with an estate where under the will, the main residence passed in a specific legacy to the trustees of an IDPI trust for the surviving spouse which terminates just 2 years and 1 day after the date of death, and then the will provides that the main residence is transferred to the trustees of a pilot discretionary trust (with CLT implications for the income beneficiary).
At the date of death the property was valued at £1.8M for probate purposes and the market value is currently thought to be worth £2.1M. The property remains an unadministered asset of the estate and has not been transferred by the executors to the trustees of the IPDI trust as yet.
The question I have is if the executors assent the property directly to the pilot discretionary trust trustees pursuant to the will (and in doing so skip over transferring to the IPDI trustees), can that event be deemed to take effect at probate value for CGT purposes (so that the pilot discretionary trust trustees take at probate value)?
If it was a specific gift it will be held on bare trusts for the trustees already, unless There is a risk of abatement. Therefore it will be a CGT disposal by the trustees
How can the executors "assent the property directly to the pilot discretionary trust trustees pursuant to the will (and in doing so skip over transferring to the IPDI trustees)” ?
I would have thought this can only be done if the interest in possession beneficiary surrendered the interest under s 142 within two years?
In which case the legacy would I assume pass to the pilot trustees who would then receive as legatees and hence at probate value for CGT.
Hi Malcolm, is there any reason why the IPDI trustees need to surrender within 2 years rather than the executors simply allowing the clock to tick until the pilot trustees become entitled after the 2 year point and then assenting?
Is your point that the pilot trust trustees are not legatees within the meaning of the legislation because there was a prior interest, even if no executors’ assent / appropriation had been made to those interested prior?
I agree with Malcolm where the IPDi is terminated/removed and s.142 IHTA and s.62(6) TCGA are engaged.
I had interpreted the question to say that the PRs make no appropriation until after the IPDI terminates in accordance with the terms of the will, in which case I believe the trustee of the pilot trust would acquire the assets as “legatee”. I believe this is supported by Re King’s Will Trusts [1964] CH 542. Whilst Re King’s pre-dates CGT, I have often seen it cited by HMRC as a justification for using the first date of death value when assessing a gain for CGT where a beneficiary has died without the asset(s) in question having been appropriated to them during their lifetime.
By analogy, if a will contains a discretionary trust, and assets are appointed by the trustees before appropriation by the PRs, it is accepted that the beneficiary is deemed to have acquired as “legatee” under s.62(4) TCGA as there has been no prior appropriation to the trustees.
Unless s.142 IHTA is engaged, it seems to me that the trustees of the IPDI will have a potential IHT liability should the life tenant die within 7 years of the transfer to the pilot trust, but have no assets available to satisfy that liability. But, if s.142 is engaged, then an IHT liability will arise back dated to the testator’s death.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Graham, I should have been a bit clearer. I think it is necessary to determine whether the assets have or have not become settled property for CGT at the time the pilot trustees acquire the assets.
If the PRs have appropriated assets to the IPDI trustees and the clock is allowed to tick then the IPDI trust ends after two years and one day and the pilot trust trustees become entitled as against the IPDI trustees (the latter being then deemed to have disposed of and reacquired the trust assets at market value for CGT; TCGA 1992 s71). The assets became settled property.
If the PRs have not appropriated the assets by the two years and one day deadline the assets will not have become settled and thus the pilot trust trustees will acquire the assets qua legatee (ie at probate value).
I refer to my last posting on this matter, and realise that I erroneously stated that “the trustees of the IPDI will have a potential IHT liability should the life tenant die within 7 years of the transfer to the pilot trust”. However, as the pilot trust is a discretionary trust the termination of the IPDI is an immediately chargeable transfer assessable upon the trustees of the IPDI, but calculated as though it was made by the (former) life tenant.
If the (former) life tenant dies within 7 year of the transfer to the pilot trust, it is only the additional “death rate” IHT that will become payable by the IPDI trustees (subject to any taper relief that might apply).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Your second paragraph is entirely relevant to the facts and very helpful, thank you.
The observation in your final paragraph is of relevance but not a material problem in the circumstances. I take it to mean that the former IPDI trustees would remain on the hook to make up the balance of IHT due should death occur within 7 years of the CLT.