I met with a gentleman (Mr A) who has been left a life interest in his late wife’s share of their home. There is no overriding power of appointment and there are the usual express provisions to sell the property and invest the proceeds or buy a replacement property.
On Mr A’s death, the property then passes as per the trusts in the residue of the estate. The residue is divided five ways: one share to Mr A; one share to each of his adult step-sons; and one share to each of his daughters (who are currently minors).
The trustees are Mr A and two of his in-laws.
The property has now been sold and the trustees wish to divide the proceeds of sale five ways as above.
Is an order of the Court needed to break the trust, given that two of the remainder beneficiaries are minors? (We think that a Court would agree to this readily as Mr A is relatively young)
Or can this be achieved by Mr A giving up his life interest? Would the property then be split five ways as per the residuary estate, with Mr A then being able to take one fifth of the capital? This would result in the minor beneficiaries receiving a one-fifth share rather than the one quarter they would receive on the death of the life tenant without anyone ‘ratifying’ this, which would seem somewhat odd.
Do the children definitely receive 1/4 on his death - i.e. is Mr A’s 1/5th share contingent on him surviving himself (which would be a little odd)? It could be that Mr A’s 1/5th share would pass to his estate on his death in which case the children would only ever receive 1/5th directly (plus the possibility of 1/5th passing via Mr A’s estate). If that were the case, then a simple release should suffice.
Either interpretation is a little odd unless it was envisaged that he could relinquish his interest for a share of capital.
I am a little puzzled as to why the Trustees seem to be taking an active role in promoting the termination of the trust. Surely their role is to administer the trusts set out in the Will.
Having said that, I feel sure that Mr A must have an absolute interest in the residue and, therefore, an absolute interest in a 1/5th
share of the wife’s share of the property. This would mean that the IPDI is only over 80% of the wife’s share and not over all of it (and Mr A could take his share of the sale proceeds out now). If an IPDI is to be brought to an end then, usually, the Life Tenant would receive a capital payment for giving up his interest but that would require the consent of the remaindermen, clearly not possible here. However, if Mr A did not want such a payment out of the 80% share then he could merely release his interest to the remaindermen and that would not require the consent of the remaindermen.
From the description given if it is split 5 ways (and not 4) then, presumably Mr A’s Estate gets a 1/5 share (since he clearly can’t survive his own death!) but perhaps his Will directs the same split such that the children and step children receive a quarter share overall (plus whatever else he is leaving to them…)
I know of at least one standard precedent clause for a property trust that includes a provision for the property to pass (on termination of the life interest) as though it were part of residue. Not everyone appreciates that this assumes that residue passes to someone other than the life tenant. In your case I would say the likely consequence of including the life tenant as a beneficiary of 20% of the residue is that there is in fact a life interest over only 80% of the property and the remaining 20% has vested absolutely (as to both income and capital) in Mr A.