Deed of Variation creating Trust - Q? settlor related?


(numberonelegal) #1

T died appointing sister as executor and sole beneficiary. The estate comprised cash and a property. The Sister would like to enter a Deed of Variation creating a discretionary trust of the property, usual Kessler precedent with broad band of beneficiaries including the “descendants of my parents” which would include the sister. Trustees (beneficiary and husband) intend to immediately (same day?) appoint revocable life interests to their two minor children who will receive the income. Does this arrangement fall foul of the Settlor related rules? If so what might be away around this situation. The sister doesn’t want to hand over a substantial property to her children at this time but doesn’t want the capital value or the income in her estate either.


(Gina Mills) #2

My understanding is that the Deed of Variation creating the Discretionary Trust will remove the assets from the sisters estate as it is the deceased that is treated as making the gift for IHT purposes.

However, for income tax purposes, the income will still be treated as the sisters.

GinaMills
Rickard Luckin


(malcfinney1) #3

If sister creates by way of a DoV a discretionary trust with herself included as a possible beneficiary she is treated as the settlor (ITA 2007 ss472/3) and the trust will be settlor interested (ITTOIA 2005 s624).

The subsequent life interest appointments for sister’s two minors does not alter the above. Sister remains a potential beneficiary and hence trust settlor interested. Settlor therefore remains taxable on trust income.

ITTOIA 2005 s 624 overrides s629.

Malcolm Finney