Early termination of life interest

Trusts Discussion
1

The trustees of a life interest trust wish to terminate the trust in favour of the beneficiary. The remaindermen are in agreement and are trustees. Can they do this even if there is no specific power of appointment?

David lewitt
Willpower

2

Applying the “rule” in Saunders v. Vautier, if the remaindermen are all ascertainable and of age they could assign their interests to the life tenant, which would enable all the interests to merge and the trust terminate. There should be no IHT implications as an interest in remainder is usually exclude property, although CGT will apply as the life tenant would take absolutely against the trustees.

If there are any contingencies applying to the interests in remainder, these could prevent an effective assignment.

Paul Saunders

1 Like
3

In order of ease:

  1. Express power of advancement/appointment
  2. s.32 advance with the consent of the life tenant - but only if the trust postdates the extension of s.32
  3. Release of life interest if the remaindermen take an immediate absolute interest (not conditional on surviving the life tenant).
  4. Agreement of all the beneficiaries.

Andrew Goodman
Osborne Clarke LLP

4

In order to terminate a life interest trust the life tenant must consent. S32 of the Trustee Act 1925 provides a statutory power of advancement.

If the trust ends during the life tenants life time, this is treated as a gift by the life tenant and a potentially exempt transfer (PET) if the trust asset passes to an individual absolutely.

The PET becomes exempt if the life tenant survives the gift by 7 years.

The life tenant could also disclaim their interest which would accelerate the interest of the beneficiary/beneficiaries. However, this approach would only be applicable if the life tenant has not already accepted any benefit from the life interest trust.

Jacqui Pearce
Premier Solicitors

5

I am dealing with something similar, but the surviving spouse has now died after moving out of the property subject to the life interest trust (she died within 7 years so a PET) am I right in thinking this PET should be included in IHT403? and the residence NRB can be used on her new property (owned by her solely) and the TRNB from her husband’s estate can be used along with both TNRB?

Lee Hibell
Paul Robinson Solicitors LLP

6

Hi Paul

What steps are required to take this route?

I presume a consent from the life tenant is necessary?

Deeds of revocation of the beneficial interests?

Are there proven precedents for this path?

Jim