Is it possible, within 2 years of a death, for trustees of a discretionary will trust of residue to make an absolute appointment of the residue to the surviving spouse and again, within 2 years of death, for the surviving spouse to then vary this onto an IPDI for herself with absolute gifts over to her children? With both being read back for IHT.
I recall seeing somewhere, some time ago that HMRC maintained that, in this situation, the spouse had created a new relevant property trust not an IPDI reading back to the will. I,of course, cannot remember the facts.
I do not believe that this is possible. Although the appointment by the trustees is treated for the calculation of IHT and CGT as having been made by the deceased, I do not believe that it is treated for other purposes as being anything but an appointment by trustees.
If so, a deed of variation cannot be validly executed by the spouse because the gift that they are trying to redirect is not actually a gift under a will or intestacy.
Of course, if the appointment has not actually taken place yet, there is nothing to stop the trustees from appointing that they hold the trust funds on an IPDI rather than for the spouse absolutely.
HMRC has previously confirmed that both s.142 and s.144 can be claimed, in either order.
In both cases, the disposition to which the relief applies is deemed, for IHT purposes only, to have been made by the deceased.
On the face of it, it appears the proposed actions may qualify for relief.
However, the fact that HMRC accepts a claim for tax relief in a particular situation should not be taken as confirmation that the transaction is a valid exercise of an executor’s or trustee’s powers. When asked, HMRC will usually state that it does not provide legal advice and taxpayers must rely upon their own legal advice when deciding if actions are legally permissible.
It seems odd to appoint absolutely to the widow and for her to declare a life interest trust. Why would the trustees not make the appointment? If the widow’s children are not within the class of beneficiaries under the will, then the proposed appointment to the widow, in the knowledge of her intended course of action, may be a breach of trust as the intention is to benefit non-beneficiaries, albeit no actual benefit may accrue to them for many years. There are circumstances in which an appointment in apparent breach of trust may be valid, but such cases are fact dependent and I would recommend the executors or trustees obtain counsel’s advice to confirm the validity of the proposed transaction before proceeding with it.