IIP Trustees becoming Partners - who gets the income?

Trusts Discussion
1

A surviving spouse has been appointed a life interest from a discretionary will trust. A suggestion has been made that the Trustees become Partners in an existing partnership. The partnership would farm and manage the land (currently assets of the IIP) and it would be a commercial decision as to what the ‘income’ profit shares would be (proposed 50:50 between the existing 2 partners - the s/spouse being 1 of the existing partners). The Trustees would need to retain 100% entitlement to any capital profits/losses. It is suggested that any income arising on the Trustees’ interest in the partnership would be 100% surviving spouse’s interest. My initial thoughts were that the s/spouse would be deemed to have assigned 50% of her entitlement or the Trustees had decided to revoke 50% of her life interest if the other partner received 50% of the income and this would be treated as a lifetime chargeable transfer by s/spouse for IHT purposes. Is the above proposal possible and, if so, what income would the s/spouse receive from the IIP as opposed to the partnership?

Geraldine Craig
Tanners Solicitors LLP

2

The s/spouse has entitlement to the beneficial interest of the farm. The legal interest stays with the trustees regardless as to who they are and the property is held for other future beneficiaries. I assume the s/spouse and the 'partner are existing trustees. The trustees can appoint the partnership to manage the farm. The s/spouse is able to set up a partnership on say, a 50/50 basis, separate and distinct from the trust, to manage the farm. The trust remains intact and the partnership agreement ensures transparency. The proposed split would result in the s/spouse beneficial interest being 50% of the any gains/profit. which is 100% of the life interest, On the lifeteenents demise the partnership ends and the trust continues. There are no IHT concerns other than the 10 year anniversary and any income tax payable would be the liability of the individual partner.

Paul Desmond Doherty