Vested or contingent interest?

Trusts Discussion
1

I am instructed by a residuary beneficiary (X - step-granddaughter) of a deceased’s estate. We did not draft the will, nor are we acting in the estate administration.

The share of residue left to X is drafted as follows:

“One equal share to X on attaining 25”

X wishes to vary in favour of her mother, but will not reach 25 by the second anniversary of the deceased’s death.

We do have the STEP 2nd edition provisions in the will, so advancement might be an option. X does not want the executors/trustees to know she is intending to vary.

Question: Is this bequest vested in X or contingent on her attaining 25? I’m inclined to think it is vested and if so, I suspect she will be able to vary? If it is vested, will it just be held by the trustees until she is 25 or advanced earlier to her?

This has created a bit of debate in the office so I would be interested to hear what others think…

Gemma Hambright
Hansells

2

A gift to a X ‘on’ attaining the age of 25 appears vested to me. It suggests that the share of the estate belongs to X but cannot be paid until she reaches 25. You have to check that there isn’t a gift over in the event that X fails to attain the age of 25 as that would then suggest that it is not a vested interest. Absent that, I do not see why X could not enter into a deed of variation in favour of her mother. The trustees will hold the share until she attains 25, but they could advance it to her earlier.

Contrast that with a gift subject to a condition precedent: ‘if’ X attains 25 which is clearly contingent.

Stuart Adams
Mishcon de Reya LLP

3

I agree with almost all that Stuart Adams has said: it will only be contingent if there is a gift over in the event that X fails to reach age 25. Don’t forget that the gift over may be couched in general terms: “if the gift of any share fails then such share will accrue to the other shares, the gifts of which have not failed”.

For the gift to be vested, there should be a separation between the gift itself and the stipulation of a date for payment (eg “payable on attaining 25”). However, if the gift is vested then the rule in Saunders v Vautier will apply and X can demand payment once she can give a valid receipt (ie after attaining age 18) as she is the only possible beneficiary. In the absence of such a demand then the PRs hold the share in a bare trust until she reaches age 25.

I was taught that where there is doubt about whether a gift is vested or contingent, the safe/cautious approach should be to treat it as contingent in case the legatee fails to reach the stipulated age. Of course, the beneficiaries under a gift over could join in the proposed Deed of Variation.

Graeme Lindop
Coles Miller Solicitors LLP

1 Like
4

Thank you for your replies.

There is gift over for X’s issue (none yet) or, failing that, the other beneficiaries will take in equal shares. It looks as if we are dealing with a contingent interest. I therefore do not believe that we can join in the gift over beneficiaries in a variation given the reference to a class.

I am unsure what our options are now - X has been informed by the solicitors dealing with the estate administration that she can vary her entitlement to take absolutely, but I am not sure this is possible for the same reason I mention above. Even if this is the case, I don’t believe she will be able to vary again in favour of mother (which is what she wants to do) as the same interest will be varied twice. Also, I don’t believe that advancement will help either as she would receive the interest absolutely and the gift to the mother would be treated as a gift.

I fear we have run out of options!

I’d be grateful for thoughts.

Gemma Hambright
Hansells

5

On the basis that this is a contingent gift, X can assign/give her interest in the gift to her mother by way of a deed of variation.
Of course, the mother receives the gift subject to the same condition (ie that X reaches 25); so, if X does not reach 25, the mother would get nothing. It seems to me that the trustees, once they are notified of the assignment, could exercise their s32 power to advance the gift to the mother, as there would be no-one with a prior interest.

Paul Davidoff
Moon Beever

6

It is difficult to suggest possible options without further details - in
particular how much is involved, and the life expectancy of both your
client and her mother.

Kevin Mullen

7

“Williams on Wills” contains some very useful chapters to help identify if words create a vested or contingent gift and, if the later, when the gift is payable. Unfortunately, I no longer have access to a copy.

Without the benefit of “Williams”, and the many cases cited in it, I am inclined to think the gift referred to is contingent and that the drafter has merely omitted that word adopting a modern “shorthand”.

If the gift is vested, and the age stipulation is merely an attempt to defer payment, it is ineffective and the beneficiary is entitled to receive their share immediately upon reaching their 18th birthday. In which case, one of the testator’s intentions, to delay payment until the beneficiary attains age 25, is defeated.

How often does one see a clause making a gift to X “on attaining age 25” (or it could be age 21 or 30)? If such gifts are vested from the outset, and not contingent, this would suggest a widespread misunderstanding of the ability to defer payment of a gift, whether it is a general, or specific, legacy/devise, or a share of residue.

In her posting, Gemma refers to the possibility of advancing the share to the beneficiary, so that she can pass it on to her mother. However, as this would be to enable a non-beneficiary to benefit, well advised executors/trustees should not normally comply with such a proposal as it would be a breach of trust (applying Wong v. Burt [2003] 3 NZLR 526 which, whilst a New Zealand Court of Appeal case, is considered “persuasive”).

X could use a deed of variation to gift her share of the estate to her mother, although those beneficiaries entitled to her share should she fail to attain 25 would also need to be party to the variation (applying Saunders v. Vautier 1841).

Paul Saunders

8

as above, but trustees can obtain life assurance on x’s life until 25 quite cheaply (depending on health)

Balkrishna Patel
Stennett & Stennett

9

Is it not the case that even where there is a gift over this does not preclude the possibility that the legacy/devise may still be vested [Phipps v Ackers (1842)] ?

Malcolm Finney

10

Could your client simply not wait until she is 25 and make the variation then? Given her age, IHT should not be a concern? CGT may be, but should be manageable.

Or perhaps I’m mistaken in thinking that a beneficiary can still vary beyond the 2nd anniversary, they just lose the IHT & CGT dispensations. somebody please tell me if I’m wrong.

David Kitcat
Kitcat & Co Solicitors