I am dealing with the will of the deceased, which is still within 2 years of his death. He left a life interest to his widow who survived him by 6 months and that was followed by a discretionary trust with a wide range of potential beneficiaries.
The trustees then appointed a revocable life interest in a property to beneficiary A and the family would now like to release the property to him, but there would now be a part exit charge. S144 IHTA does not apply because off the prior life interest.
However if they now appoint the property subject to the life interest to A to adult beneficiaries, can A and those beneficiaries, with the trustees, effect a Deed of Variation under s142 IHTA to vary the will to provide that, subject to the widow’s life interest, the property goes to A absolutely and so avoid an exit charge by overriding the discretionary trust in relation to that property?
Provided that all those entitled to the trust property – applying the Saunders v. Vautier principle – are party to the instrument then, yes, a variation effect under s.142 IHTA 1984 should be effective.
However, should there be minors or unborn members of the class of remaindermen, a variation would not be valid unless authorised by the court on their behalf under the Variation of Trusts Act 1958.
I don’t think your suggestion works to avoid the exit charge because the beneficiaries would not be varying the dispositions made by the will, they would be varying the interests created by the subsequent deed of appointment. Presumably however the exit charge will be very small.
Thanks for the comments. However the D o V would vary the will to provide that subject to the widow’s life interest the property goes to A absolutely. The prior appointments would be neutral re IHT but would ensure that there are only adult beneficiaries interested in the property the subject of the D o V
Looking back to the original posting, it seems to me that the proposed appointment is to create a closed class of remaindermen, who can then gift their entitlement to A.
On the basis that, without this step, it would not otherwise be possible to vest the property absolutely in A, I suspect such exercise of the power of appointment may be a fraud on the power and, therefore, susceptible to being set aside on the application of any of the disadvantaged beneficiaries.
If the arrangement is to be progressed, I suggest the trustees should protect themselves by seeking an opinion from Chancery counsel in support of the proposition.
I do not think it is a fraud on the power. The intention is to appoint the property to A absolutely which the trustees are empowered to , albeit involving a now exit charge. The D o V route is to avoid the exit charge but still intended to achieve the absolute appointment to A.