Deed of Variation more than 2 years

Trusts Discussion
1

Hi

I have taken over a case where the wife passed away in March 2016. She made a Will in 1988 which left her estate to her husband “for his own use and benefit during his lifetime” with a substitute provision that passes the estate to further beneficiaries “on the death of my said husband or if he shall predecease me”. In my opinion that has created a life interest trust for her sole estate (which is cash of approx £77k). Everything else has passed to the spouse as the surviving joint owner.

The beneficiaries believed that the estate went to the deceased’s husband and so were quite surprised that it was only during his lifetime and did not expect to inherit.

Even though we are over the 2 years, I believe we can still vary the estate to remove the life interest and make it an absolute gift to the husband (with all beneficiaries agreement of course) and, even though there would be no reading back for tax purposes, it does not alter the IHT position of the estate, since there is no IHT liability in either scenario. No CGT either as it is cash and not shares, so I presume I would draft a DofV in the usual way and simply omit the reading back statement entirely? I have read comments by Mr Saunders regarding HMRC not accepting a variation to remove a life interest trust, however there is no tax in either scenario so I cannot see them being interested in this.

Any assistance would be appreciated.

Many thanks

Gemma Van Duke
Bishopsgate Law

2

You will need to do a deed of assignment of reversionary interest by the beneficiaries to the husband. No iht for the beneficiaries as it is excluded property.

Simon Northcott

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3

Provided that all the potential beneficiaries on the death of the husband are living and of age, they should be able to terminate the trust by assigning their entitlement to the husband. As Simon says, the gift of an interest in remainder is an exempt transfer for IHT purposes. If any potential beneficiaries are as yet unborn, it will not be possible to enlarge the life interest into an absolute interest (other than by an application under the Variation of Trusts Act 1958).

Whilst HMRC will not normally allow s.142 IHTA 1984 to be used to remove a life interest following the death of the life tenant, it does allow a variation during the lifetime of the life tenant, or the enlargement of the life interest to an absolute entitlement (although HMRC will often enquire in the later instance if there is any intention to benefit the remaindermen though other routes).

Paul Saunders

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