Discretionary Trust query


(b.poulter) #1

I have an estate which contains a Halifax Financial Services Personal Investment Plan written in trust.

The Plan/Trust was set up in 2004 and the deceased died last year.

Halifax have kindly send me a copy of the trust document which, on the face of it appears to be a discretionary trust. However, the trust is based on the life of the Settlor (the deceased) and there is only one beneficiary named in either Schedule 1 or Schedule 2 (beneficiary in default of any appointment). There is not even provision for their dependents or remoter issue and no provision to add beneficiaries.

Is this a discretionary trust, which would require me to prepare IHT100 and apply an exit charge or, as there is only one beneficiary named, not?

Thanks for you help.

Belinda Poulter
Crombie Wilkinson Solicitors LLP


(Paul Saunders) #2

In the absence of any power to add to the beneficiary class if, from the outset, the only possible beneficiary is the named person this would seem to be a bare trust dressed up as a discretionary settlement.

However, care needs to be taken to be satisfied that there are no conditions attached to that beneficiary’s entitlement, e.g. the need to survive the settlor - which would have resulted in a reversion to the settlor should the named beneficiary have died first.

It may be the trust form was not properly completed and further names should have been added into the schedules. I suggest sight of the adviser’s file would be helpful, as this might indicate if there was any misunderstanding at the relevant time.

Paul Saunders


(ian.dyall) #3

My background is in financial advice and life companies. If the document is a trust off the shelf from a life company or financial advice company that was settled pre March 2006 it is very unlikely to be a discretionary trust. The vast majority of trusts used were flexible power of appointment trusts where the default beneficiary had a life interest in any income produced.

The life companies used these as there was still flexibility to change beneficiaries, but the initial investment was treated as a PET and therefore was unlimited in size. The need for distributing income was obviated by the fact that they almost always held life assurance policies which do not produce income (regular withdrawals are classed as capital).

The potential beneficiaries were either manually entered in a box on the trust deed (which was unusual due to the potential for error), pre-printed in a box on the trust deed, or listed as classes of beneficiaries in one of the trust clauses.

On trusts where potential beneficiaries were intended to be entered manually it is very common to see that they have been omitted by mistake. So Paul may well be right.

Ian Dyall
Tilney