Dear All,
My client has a life interest in 50% of deceased wife’s property and her capital monies. The remaindermen are 50% between her sister and 50% between her nieces and nephews.
My client is concerned that in view of the ages of his deceased wife’s sisters, they will not benefit from the any of these assets at all as he is very likely to outlive all of them (and the will is drafted so that if the sisters do not live until the trust comes to an end, their interest also comes to an end) and accordingly wishes to advance all of the capital monies to them. However, he does not want or need to advance to the nieces and nephews.
My question is:
Is it possible to advance to one lot of remaindermen and not the others
and
how do I ensure that if we advance to the sisters, will this all be taken into account when he died so as to enable to nieces and nephews to receive more than the sisters given they have already been advanced funds?
If TA 1925 s32 applies, as it will unless excluded or altered by the Will, the sisters can be advanced their share(s) in full so cancelling their presumptive shares altogether if the trustees so decide: s32(1) provisos (a) and (b) That will be done on the basis of a current valuation of the entire trust fund. They are prospectively entitled to 50% of the total trust fund but presumably only the capital monies are free to be distributed.
It is not clear what proportion of the whole the capital monies represent. If they are equal to or greater than 50% of the whole then an amount of them up to that 50% can be advanced to extinguish their remainder entirely. If less then all the monies can be advanced but only on account of their remainder and that will diminish their remainder entitlement. Of course if they do not survive your client, that remainder will never vest but that does not prevent the advancement and the nieces and nephews will then be the sole remaindermen.
It seems to me that this is a generous approach to the sisters overall, given their contingency and ages, so that the fact that the house might appreciate in value more than the capital monies is not unfair to anyone. The nieces’ and nephews’ remainder value, represented by most or all of the half interest in the house, will probably outweigh the sisters’ actual take. IHT must not be overlooked. This will probably be an IPDI trust if not pre-2006 so the advancement will be a PET, If H does not live for 7 years his NRB will go first to the advancement, though he could consider insurance. Unless there is enough NRB left when he dies there may be a positive tax charge on the remainders which could be amplified by aggregation with his free estate and/or increase the charge on it (the current situation).
If enough NRB is available it might be worth advancing first the nieces’ and nephews’ share on an RPT which could be justified for their if it prospectively saved tax, especially tax caused by aggregation. The RPT could underpin the benefit by neutrally mirroring their current entitlement so far as possible including the client’s life interest but with limitations different enough to ensure it constitutes a separate trust. For IHT this would be a CLT rather than a PET but covered by the NRB. It will be a disposal for CGT but should attract PPR to the disposal and allow it to the trustees on a later disposal. s68B TCGA ensures that your client is not the settlor so the new trust is not settlor-interested; so PPR can be claimed on sale and on his death the s72 uplift would apply. With any luck future IHT RPT charges would enjoy a full NRB in calculating the rate.
Then the advancement PET to the sisters can be made. Care will be needed if any IHT would fall due if the client died before them, as to whose liability it would be under s201(1) IHTA . If the client survives 7 years he will regain his NRB and have saved tax on his free estate as well. Only the remainder interest, if any, of the sisters will be in charge, if they survive him. As your client only has a life interest in half the house he is not prejudiced as long as his right to reside conferred by it is not affected.
Jack Harper
Under the statutory power [TA 1925 s32], “Yes”, up to 100% of a beneficiary’s vested/presumptive share may be advanced albeit subject to consent of an interest of a prior beneficiary. Once 100% has been advanced that beneficiary’s entitlement is exhausted.
When a beneficiary, who has received an advancement, becomes absolutely entitled to any of the trust property the amount of any prior advancement must be brought into account [
TA 1925 s32(1)(b)].
Thus, for example, assume X and Y are each entitled to one half of the trust fund on attaining age 25. Assume an advancement of £10,000 is made to X. When the fund is worth say £70,000 it is distributed.
X will receive [50% of [70,000 + 10,000]] ie 40,000 less the already advanced amount of 10,000 giving 30,000. Y will receive 40,000.
The key point to perhaps note is that where a beneficiary receives by way of advancement the whole of his/her share which is thus exhausted, no part of any subsequent increase in the trust fund can be advanced to such beneficiary.
Malcolm Finney
This has been extremely helpful, thank you very much!
Gurvinder K. Sehra