Absolute defeasible interests are much neglected because where they are immediately vested in possession they embrace eligible recipients of lifetime PETs or are non-settled gifts by Will. Their being subject to defeasance by exercise of a power of appointment does not make them settled for IHT. I would not accept that, in the absence of contrary wording (either explicit or evincing an intention to create a trust), such a disposition came within s43(2)(a) IHTA and it most certainly is not within (b) or (c). The appointee of the power should not be permitted to appoint him or herself and the power should be fore safety expressly non-fiduciary and not capable of being exercised to create or appoint to a trust. Such limitations are rare in Wills but very common in life policy trust wordings where the defeasible interests (though usually plural) are immediately vested in possession rather than in interest and by way of default.
It seems to me that your clause is unusual as being not only singular but for the benefit of [the spouse] . Naturally you are not more specific but how that is defined could be interesting in some cases. The oddity is that this kind of provision is usually expressed as an ultimate default clause for the benefit of younger or even unborn generations of the family (immediate or wider) or for charity to avoid a resulting trust (inter vivos) or partial intestacy (will trust). But I have encountered a few lesser spotted versions e.g. I recently commented on a friend’s Will (and tangentially those of his wife and children) in choosing a default clause responsive to the fact that there are no grandchildren nor ever likely to be. BTW he also purported to bequeath his pension pot (O tempora, o mores, o di immortales, as my Polish Latin master would have exclaimed).
The risk of such a narrow default clause for a person who may even be of a similar age to the testator is that if the preceding DT were not exhaustively exercised by the end of the trust period it might be difficult to trace who was entitled to the spouse’s estate, unless he or she were then alive or only recently deceased (only joking), with an outside risk of richly undeserved bona vacantia. We all know a man (or woman) who can undertake that task! Of course the testator (one hopes advisedly) expects that to never be relevant because the DT trustees will act to avoid its ever happening. The risk might be that the the eligible class of the DT beneficiaries is prospectively, or turns out to be, very narrow; indeed their current number and ages, if any, and the likely chance of unborns, plus any available power to add, may indicate that the testator had in mind an exhaustive exercise well before the expiry of the 125 years or even a prior exhaustion of the class itself.
I am not sure why you are concerned that the default gift might be defeasible. It does not apparently settle that issue, as one normally would, by adding “absolutely”. What contextually might indicate that either to be or not to be so? In the absence of contrary indicators I would view this as an intended backstop default clause, which on death would create an equitable right vested in interest, but transferable by any proper method, although very probably then of current limited value.
Note that it is not certain that it will be excluded property in a will trust (it certainly would not be in an inter vivos trust); clearly here it is a reversion under a settlement per s.47, but on the death of the deceased his then spouse would arguably no longer be such for s.48(1)(b). However, what about s.18? IHTM16231-2 are silent on this but I do not think the notional timing of s4(1) can be taken as imputing a pre-death beneficial acquisition of any part of the estate, which in property law can only occur afterwards. A slight worry is that this same argument would seem to make nonsense of the s.18 exemption. IHTM04283 is of no help either, save that the mischief envisaged is plainly linked to a lifetime settlement. Nor is 11032 which does not mention the status of surviving spouse; s.18(1) envisages that the exempt transfer applies to property which “becomes comprised in the estate” i.e. “beneficially entitled” per s.5(1), so obviously doing so after death and scotching any s.4(1) timing doubt. Nonetheless, once again, 11032 is aimed at lifetime transfers: “Consequently, the exemption applies to transfers between people who are lawfully married to each other at the time of the transfer”. A surviving spouse is literally not.
So we cannot be absolutely sure that such a reversionary interest is not one to which the settlor’s “spouse [F2or civil partner**]** is or has been beneficially entitled”. That individual becomes so entitled after the death for the s.18 exemption at a time when they are strictly a former spouse or civil partner. So the worst view is that it is not excluded property, although initially almost certainly of little value, making the point nerdily academic.
Jack Harper
Someone replied to a topic you are Watching.
| andrew.goodman
20 March |
I’m looking at a will which is quite special in a number of ways. One is a will trust that provides for:
- A discretionary trust over “the trust property” for a class of beneficiaries exercisable during the Trust Period (125 years).
- In default of appointment, “the trust property” is held on trust “for the benefit of [the spouse].”
This seems to be an absolute defeasible interest but what happens for succession purposes on the death of spouse? Does the interest devolve as part of spouse’s estate but remain defeasible?