Deed of Variation by Remainderman

Trusts Discussion
1

Dear All

We have an estate where F died in 1965 leaving a Will containing the following life interest:

“My Trustees shall hold the net proceeds of such conversion and my ready money:-

a) Upon Trust to pay all my debts and funeral and testamentary expenses
b) Upon Trust to invest the residue in their names in the purchase of such stocks funds shares or securities of whatsoever nature and wheresoever and whether involving liability or not as my Trustees shall in their absolute and uncontrolled discretion think fit and shall stand possessed of such investments and of all parts of my estate for the time being unsold (hereinafter called my residuary estate)
c) Upon Trust to pay the income thereof to my daughter D during her spinsterhood
d) On the marriage of my daughter D my Trustees shall hold my residuary estate in trust for my daughters D and B in equal shares
e) On the death of my daughter D without having married my Trustees shall hold my residuary estate and the future income thereof in trust for my said daughter B absolutely”

D is alive and has never married but has since lost capacity. She remains the current life tenant of the estate.

B died recently.

In 2017, B signed a Deed of Variation leaving her interest to her two children J and I.

My thoughts are that B had no ownership rights in 2017 to vary her interest at that time as she only had a contingent interest subject to D’s life interest. Do forum members agree?

In which case, she hasn’t actually varied the distribution of the estate on D’s death? This is important as J and I wish to consider varying their interests too but the same assets can’t be varied twice.

Presumably the same also applies in that J and I can only vary their interest under a Deed of Variation on the death of D and not before?

One suspects they are looking to redirect their interest as a gift rather than disclaim and relinquish all control over the redirection.

The next question is whether the estate now passes under s33 or as a partial intestacy to F’s estate, although realistically, the same beneficiaries would inherit either way.

Many thanks in advance.

Jennifer Howell
Swayne Johnson Solicitors

2

Unless B was required to survive D, it seems to me that she had a remainder interest that was capable of assignment, so that the gift to J and I exists.

Until D dies, or marries, the interests of J and I are reversionary interests and therefore, until they vest, excluded property for IHT purposes under s.48 IHTA 1984. J & I could therefore gift them without any IHT implications.

If, however, B was required to survive D, which does not seem to be the case from the extract quoted, then her entitlement would have died with her and J & I would need to establish whether they had any entitlement to the trust fund.

Who would be entitled to the remainder, should D marry – the quoted extract only specifies the succession should D die “without having married”? Despite the fact that D is unmarried and has lost capacity (care, capacity to marry is significantly less than that to, say, make a will), the decision in Figg v. Clarke (1996) Ch.D 11 March 1996 might have implications. In that case, the trustees terminated a trust on the basis the class of remaindermen had closed as the life tenant was physically unable to father further children. However, the court held that such incapacity did not close the class under trust law. If a similar line were to be taken in the trust under consideration, a court might hold that until her death it cannot be assumed that D will remain unmarried.

If the effect of D dying is that an intestacy arises, then the remainder will be distributable to those entitled under the intestacy of F living as at the date of her death. J & I may therefore be entitled to B’s interest in remainder, either through her estate or via the 2017 deed of variation. Much will depend upon the wording of the 2017 deed.

Paul Saunders

3

I am broadly of a similar view to Paul Saunders. Starting with the last question first, s33 Wills Act 1837 applies where the named beneficiary predeceases the testator, which is not the situation here.

It sounds as though B had a vested interest in remainder and that, in 2017, D assigned that interest to J and I. That remainder interest would have been excluded property and so there would have been no IHT consequences on the assignment, even though this was over 50 years after the father’s death.

That being the case, J and I now also have reversionary interests (only while D is still alive) which are excluded property and they can assign those (eg to their own children) before D’s death without IHT consequences, regardless of the fact that those interests were previously assigned to them by B. If they wait until D has died, then their interests will no longer be reversionary and therefore not excluded property. Also, because the death from which the interests arose (ie the father’s death) was more than two years prior, s142 IHTA will not apply to a Deed of Variation.

However, if D dies before they do this, then there is still the possibility of their simply assigning their interests (which would be PETs) or even “disclaiming” their interests under the father’s Will. A disclaimer would not have IHT consequences for them and might (depending on the wording of the whole of the Will) result in the remainder of the trust passing, for example, to the estates of B and D (it probably devolves to all of the father’s children - were there others? - you would need to check the intestacy rules from 1965). If it is still less than two years since B’s death by that time, and if J and I inherit under B’s Will, then J and I might still be able to execute a Deed of Variation in respect of B’s Will re B’s share of the remainder interest. If they also inherit under D’s Will/intestacy, then they could execute a Deed of Variation in respect of that Will/intestacy as well, in respect of the other half of the trust fund.

Conceivably, J and I could now execute a Deed of Variation in respect of B’s estate now to redirect to other beneficiaries B’s interest in remaining part of the father’s estate/trust, regardless of whether there proves to be anything left in it to which B’s estate would be entitled. If J and I later disclaim their interests in the trust, part of the remainder would then revert to the father’s estate and (presumably) half would devolve to B’s estate as varied by the Deed of Variation. I managed something similar to this a few years ago, where the life tenant had already died and the remainder beneficiaries wanted to “vary” their inheritance from the trust.

It does all depend on the precise wording of the rest of the father’s Will, the terms of the 2017 “Deed of Variation” and who inherits from B’s and D’s estates.

Paul Davidoff
New Quadrant Partners Ltd

4

Thank you both, most helpful

Jennifer Howell
Swayne Johnson Solicitors