I have a case where a life tenant, aged 103, has just moved out of occupation of the trust property. There is a proposal by his attorney under a registered EPA that the LT gives up his life interest and partitions the trust with the remaindermen so that the trust terminates. The LT will receive a cash payment.
The attorney indicates that the LT lacks capacity to enter into a Deed of Partition.
The question arises as to the nature of this transaction: is it a gift by the LT that will require authorisation by the court of Protection; or is it just a commercial transaction in that the LT is selling his interest to the remainderman for cash and that can be dealt with by his attorney?
My understanding is that the transaction will need Court of Protection sanction.
Does the attorney have a report from a suitably qualified person to confirm the LT lacks capacity to enter into the transaction?
If not, and given appropriate support, the LT has sufficient capacity, then they could perhaps execute the deed themselves or validly direct their attorney to execute it for them.
One aspect the LT would also need to be aware of is that, by entering into a partition, they may deprive the beneficiaries of their own estate of any part of their nil rate band, shifting the IHT burden away from the trust fund. I only say “may” as, if their life interest arose under the will of their spouse who died when estate duty applied, the transitional arrangement may mean that spouse exemption will apply to the transaction effected by the deed of partition. This is also an aspect the Court of Protection might need to consider.
If an actuarial valuation of the life tenant’s interest was used to compensate the life tenant for giving up the life interest and term cover obtained against the life tenant not surviving 7 years, could it then qualify as a commercial transaction as suggested and therefore not requiring court authorisation?