deed of variation - discretionary trust


#1

If a will is drafted to contain a discretionary trust, can the will be varied to transfer the assets of that discretionary trust to another existing discretionary trust, not withstanding that the beneficiaries of this new trust are not all beneficiaries of the will trust. Does this require the consent of all the potential beneficiaries listed in the will of the discretionary will trust? Does it make a difference that they only have a hope of benefiting from the discretionary trust?

Anna-Britt Nicholson
Nicholson Clark


(Paul Saunders) #2

Unless the testamentary discretionary trust includes power to appoint to the trustees of another trust (generally defined within the trust terms as a “Qualifying Settlement”), a variation will require the consent of all the possible beneficiaries of the testamentary trust, applying the “rule” in Saunders v. Vautier. The existence of minors (or unborn beneficiaries) within the class would normally be fatal to any variation, unless authorised by the courts under the Variation of Trusts Act 1958. In the absence of an appropriate order the trustees would likely be acting in breach of trust.

There may, of course, be extenuating circumstances peculiar to the specific situation in hand where the trustees might be able to validly exercise their power of appointment to achieve the proposed outcome. However, if this were to be considered, I suggest they should only do so if they have the protection of an opinion of Chancery counsel supporting that course of action.

Paul Saunders


(malcfinney1) #3

Could not the trust property be appointed out to one of the beneficiaries under IHTA 1984 s144 who then in turn under a DoV under IHTA 1984 s142 settles the appointed assets on a new discretionary trust?

Malcolm Finney


(Paul Saunders) #4

I would be very wary of appointing out to a beneficiary, to enable them to resettle on new trusts.

If it would be a breach of trust for the trustees of the testamentary trust to appoint onto the new trusts, if the trustees knew of the appointee’s intention facilitating the appointment indirectly will also be a breach and a fraud on the power.

Paul Saunders


#5

Apologies for hijacking, but I have the exact same situation but my query concerns CGT consequences of the re-settlement.

Mr X who wants to leave assets to a Will DT and the trustees will have power to re-settle to other trusts (Mr X has lifetime DTs as well). The beneficiaries across all trusts are the same.

If the trustees decide to re-settle the Will DT assets to the lifetime DTs within 2 years of death, I believe we will qualify for s144 write back for IHT.

BUT, I understand there is no corresponding CGT write back. So, I gather we will have a disposal for CGT purposes. Can we get hold-over relief…?

Gemma Hambright
Hansells