Wife died in 2019. Life interest trust of property to husband remainder to children. Husband has just died. Children are residuary beneficiaries in his estate.
One of the children wants to redirect her entitlement from both estates to her own children.
She can do deed of variation in husband’s estate in relation to his own half share of the property but it is clear from the legislation that such a deed cannot cover the share in which he only had a life interest. However as we are still within 2 years of the wife’s death can we do a deed of variation of her estate? I have searched the IHT manual online but cannot see that this scenario is mentioned and it is not covered in Lesley King’s book about deeds of variation.
If the life interest has ended and the whole property now vests absolutely in the remaindermen and you are within the two year period then I don’t see why not.
HMRC has a long standing view that, despite the fiction created by a deed of variation, the “Real World” applies when dealing with a life interest. Accordingly, upon the death of the life tenant, it asserts that as the life interest no longer exists it cannot therefore be subject to a variation effective under s.142 IHTA 1984.
If the circumstances permit, it is still open to use s.93 IHTA 1984 to disclaim the life interest.
There have been a number of instances where a formal challenge to HMRC’s blocking of the variation of a life interest has been considered but, in general, the costs of doing so have been seen as prohibitive, mindful that HMRC were likely to take it “all the way” if the court ruled against it.
Whilst I disagree with HMRC’s position, which I had discussed with Peter Twiddy when he(?) decided to impose it, as there is no support for the limitation within s.142 to support its position, until it is judicially tested we may be stuck with it.
In the meantime, I recall that James Kessler QC has suggested that there is a work-around by which the HMRC “rule” can be negated.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
On the death of H (ie the interest in possession beneficiary under the trust set up in W’s will) the remaindermen (ie the children) are unable under s 142(5) to redirect their interest in remainder (although a disclaimer is possible).
Following Soutter HMRC are of the view that the PRs of a deceased interest in possession beneficiary (ie the PRs of husband’s will) cannot eliminate/redirect the life interest created under W’s will by DoV on the grounds that the interest has ceased to exist and so there is no property to vary.
Thank you for your comments Paul and Malcolm. I totally get that the remaindermen cannot vary H’s Will as his interest in possession is not in effect part of “his” estate to fall within sec 142 and is specifically excluded by 142(5).
But the remaindermen are inheriting from W’s estate under the terms of “her” Will albeit following the life interest which has now come to an end. As we are still within 2 years of W’s death my question was can we vary her Will?
Sec 142 (1) states:
"Where within the period of two years after a person’s death—
(a) any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property comprised in his estate immediately before his death are varied, or
(b) the benefit conferred by any of those dispositions is disclaimed,
by an instrument in writing made by the persons or any of the persons who benefit or would benefit under the dispositions, this Act shall apply as if the variation had been effected by the deceased or, as the case may be, the disclaimed benefit had never been conferred."
Can it not be said that the gift of the share of the property to the remaindermen is a disposition of property comprised in W’s estate immediately before her death? I can see no other reference within sec 142 which excludes the remaindermen from varying her Will? This is probably not a very common scenario as it requires both deaths to be within 2 years of each other.
I can see no reason why the gift of remainder under W’s will cannot be assigned to another and such assignment fall within the provisions of s.142 IHTA 1984. However, that would not remove the intervening life interest in favour of H, as the remaindermen may only direct their own entitlement (which is subject to the prior life interest of H).
Most misconceptions as to what can be achieved by a variation (and how) are based in the thinking that a variation changes the terms of the will, or can retrospectively effect a severance of joint assets. It does neither. The variation is merely a gift by the original beneficiary/surviving co-owner(s) which is dressed up for IHT purposes, and some CGT purposes, as though such gift had been made by the deceased.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals