DOV creating settlor interested discretionary trust

A client has been advised to enter into a DOV in relation to late mother’s Will (only 8 days left until the second anniversary of death) so that his share of the residuary estate (approx £240,000) would instead be held on the terms of a discretionary trust. The client tells me he would be included in the class of potential beneficiaries together with his wife.

I highlighted the settlor interested tax consequences of this plan of action but he wishes to proceed regardless.

If the trust deed contained an express provision for beneficiaries to be removed and this was used at a later date to remove the client and his spouse as potential beneficiaries, would this then negate the settlor interested tax consequences for the trust from the date of removal onwards ?

Jessica Johnston
Sampson Coward LLP

This is very sensible IHT planning. The gift with reservation of benefit that isn’t treated as a gift with reservation of benefit because IHTA s142 treats the deceased as settlor for all IHT purposes.

I would always advise that the maker of the variation is themselves one of the trustees and someone closely trusted by them is the other trustee.

And the income tax position is much simplified if the varier is given an interest in possession shortly after the two years expires.

Anthony Nixon
Irwin Mitchell Private Wealth

Where the settlor (and spouse) are in future excluded then ITTOIA 2005 s624 will cease to apply with respect to any income arising on or after the date of exclusion.

Malcolm Finney