Distributing before age of 25

(Anne Duguid) #1

Testator died leaving estate to “for my grandchildren who are living at my death and who reach 25, in equal shares”.

There is provision in Will to pay capital and income before that age. There are 6 grandchildren, 4 are over 25, 2 are 20 and 22 (and they are French citizens).

The executors would like to distribute all of the estate now, not waiting for the 2 youngest to reach 25. Are there any tax consequences to be aware of? They will each be entitled to about £125,000. The estate was subject to IHT.

Anne Duguid
LGP Solicitors

(Peter Harris, Barrister, Overseas Chambers ) #2

If distributions are made to any French residents out of the estate by the executors, not by any trustees, there should be no adverse French effects as the French receipts basis will be overridden by the Estate/Succession Duty Treaty.

The Treaty implicitly recognises the Britiish notion of executorship and shields it from the quaint redefinition of a trust in article 792-0 bis I. It is only if the will sets up a will trust that life after death becomes more complex, from the French recipient’s perspective, and from that of any unsuspecting executors acting as trustees.

I am assuming that the deceased was UK domiciled and resident.

Peter Harris


(Julian Cohen) #3

That sounds like a contingent legacy to me, and four of the beneficiaries have not attained the specified age.

Julian Cohen, Solicitor

(Paul Saunders) #4

Even if a contingent legacy, as some of the beneficiaries are over 25,
their interests will have vested. Accordingly, if the gift is a class
gift, the only beneficiaries of which are the 6 grandchildren, it seems
to me Saunders v. Vautier could apply so that the beneficiaries can give
a joint instruction.

However, if there is a gift to issue should a beneficiary not attain 25,
or their share passes other than to the other grandchildren, that will
effectively block a gull distribution of the trust fund at this time.

The same would be the case if, unusually, the beneficial class is
directed to close only when the last grandchild attains the specified
age, as this Will normally keep the class open until the vesting event
occurs. (In my view not a particularly friendly provision, as it can
prevent the legacy vesting for an uncomfortably long period.)

Paul Saunders

(andrew.goodman) #5

Presumably if the death was post-2014 then the trustees can simply advance the entire shares of the 2 under 25.

There would be no UK IHT consequences for beneficiaries over 25 at the death as they are absolutely entitled to a one-sixth share from the date of death. If they receive assets other than cash they will take at probate value for CGT.

If under 25s have an immediate right to income (they receive income under an express provision or because s.31(1)(ii) is not excluded), it will be an IPDI so no IHT issue on distribution but a CGT deemed disposal of any non-cash assets forming part of their share. This would be against probate value so any gain will hopefully be small.

If s.31 is excluded so that the under 25s don’t have an IPDI then their shares will be relevant property. Possible IHT exit charge for the period since death and same CGT position as above with added possibility of holdover relief under s.260 TCGA (I think).

(nb not an 18-to-25 trust as they are grandchildren rather than children).

Andrew Goodman
Osborne Clarke LLP

(Andrew M Mortimer) #6

I wonder:

What the precise wording is of the “provision in Will to pay capital and
income before” the grandchildren reach 25?

Whether trustee powers can be exercised during administration period before
the trust comes into being i.e. on earlier of when residue has been
ascertained or funds have been appropriated by the executors to the

Andrew M Mortimer

(Anne Duguid) #7

The wording is a s follows:

My Trustees must hold the Trust Fund on trust for my grandchildren who are living at my death and who reach 25, in equal shares.

1.1 While a grandchild is under 25, my Trustees:

1.1.1 may pay the income from the grandchild’s share of the Trust Fund to that grandchild or use it for his or her benefit; and

1.1.2 subject to any exercise of my Trustees’ power under clause 4.2.1, must add to the grandchild’s share of the Trust Fund any income from that share.

1.2 While a grandchild is under 25, my Trustees may pay some or all of the capital of the grandchild’s share of the Trust Fund to the grandchild or use it for his or her benefit.

1.3 If a grandchild of mine dies before me or before reaching 25, leaving children of his or her own, my Trustees must hold the share of the Trust Fund that they would have held on trust for the beneficiary who has died on trust for those children who reach 25, in equal shares absolutely.

1.4 Sections 31 and 32 of the Trustee Act 1925 do not apply to the trusts in this clause 1.

Anne Duguid
LGP Solicitors

(Paul Saunders) #8

The class is closed, so that only those grandchildren in existence can benefit.

Saunders v. Vautier cannot apply as if any grandchild dies under age 25, their entitlement oases to their children. Even if those grandchildren are currently childless, there remains the possibility of them dying under age 25 , but having become a parent in the meantime (applying the rationale from Figg v. Clarke).

Although ss.31/32 Trustee Act 19225 are excluded, the clause has its own scheme for income and capital distributions before age 25.

Clause 1.1.2 brings in reference to the exercise of trustees powers under clause 4.2.1, but this would seem to apply only to income (however, this would need to be reviewed and confirmed).

Clause 1.2 appears to permit trustees to either pay any, or all, of the grandchild’s share to that grandchild, or to use it for their benefit. This would not appear to extend to making any payment to the children of a deceased grandchild before they attain age 25.

On the basis that there are no other provisions in the will which might impact on the effect of clause 1.2, it would seem the trustees could validly terminate the trust by distributing all the grandchildren’s shares now, notwithstanding that some are yet to attain the specified age.

Other contributors have flagged both tax aspects and other points to be considered.

Paul Saunders

(Peter Harris, Barrister, Overseas Chambers ) #9

So it is a Trust not an executorship?.

If the Beneficiaries are resident in France, you have a French tax issue.to resolve. Were that the case, it is technically a trust under article 792-0 bis I CGI, and technically should have been declared on the decease of the Testator unless it can be brought within the exception in 792-0 bis II as declarable as a gift of succession.
There are filing penalties of €10.000 for each default, including annual returns and whilst it is unlikely that a French resident Grandchild might have an ISF issue being worth more than €1.3 million , the matter could get quite complicated even for payments of £125,000 each.
There is a dispense for trusts which can be declared as successions, for example as contingent legacies, which Julian pointed out, but you would need to be careful as to how that was prepared and declared. I would suggest that in any payment to a French resident beneficiary, you take advice on that route so as to attempt to step outside article 792-0 bis I.and II and remain within the Succession Duty Treaty.

Peter Harris