I have assisted a client with a probate application where the Will lives the entire residue to the daughter (of the deceased) at age 70. I believe the beneficiary was 60 when the client died which was only a year or so ago.
They have now asked me to register the Trust with the TRS and I also wanted to advise on the taxation implications of the Trust. Initially I was assuming this would be a relevant property trust and therefore subject to ten year charges etc but wondered if s31 Trustee Act applies here. The STEP provisions (standard and special) are incorporated in the Will.
I guess I am confused whether s31 only applies to trusts where there are minors or whether it applies here and because the beneficiary is 60 she was entitled to the income on the death of her mother and therefore the trust would be taxed as an IIP for IHT purposes.
A contingent residuary gift of personalty always carried the intermediate income, under case law pre-1926. A contingent residuary residuary gift of property, real or personal, now carries it by virtue of s175 LPA 1925. So the daughter is entitled to the income and taxable on it until the contingency is satisfied or her earlier death. This presumes that the income is not expressly dealt with otherwise by the Will. S31 TA only applies to minors. For IHT it is an IPDI.
I don’t disagree with Jack’s conclusion but (with some trepidation) can I suggest that s31(1)(ii) applies to give the daughter the IIP. He may of course have just meant that s31(1)(i) [discretion to pay] does not apply.
Sorry to disagree Andrew. The daughter was not a minor (she was initially 60) at any time when “the property” was held in trust for her by the trustees so s31 simply never engaged at all.
TA 1925 s31(1)(ii) would vest any income of a contingent interest of a beneficiary from age 18 where the beneficiary had a contingent interest in capital from say age 70 (or indeed any age beyond 18).
I can’t argue from first principles but the authors of Lewin agree with me despite acknowledging the awkward wording:
“to avoid perverse consequences, the statutory provision should apply to the case of a beneficiary who is adult at the date his interest is created, as well as to the case of a beneficiary who reaches the age of majority after his interest has been created”
In the current case the effect of s31 is to vest the income from age 18 despite the capital contingency operating from age 70. I never understood, as you suggest, that as the beneficiary was never a minor when the property was trust property that this had the effect of preventing s31 from applying.
I no longer have access to (the totemic) Lewin, unless I win the pools, but Practical Law confirms, with a link to Lewin, that s31 applies to an adult’s contingent interest. Such an interest must nonetheless carry the intermediate income per s31(3), although all testamentary contingent non-pecuniary gifts do. I do have Underhill. Pettit, and Moffat. All are silent on the point though the headings in the first two say Power of Maintenance for Infants/Minors.
Can anyone think of an instance in which anything turns on the applicability or not of s31 to a person who is already an adult at the date of the deceased’s death? If s31 were excluded the adult would still be entitled to the income.
Whilst not frequent, it is not unusual for the age in s.31 to be extended to a later age where a gift is contingent on the beneficiary attaining an age greater than 18 years (maybe, say, even 50 years).
It has no application in extending the vesting of a benefit where the age in s.31 is extended but all gifts are given absolutely (as I have see on at least one occasion).
The main challenge with extending the age during which s.31 applies is that the provision is too often include towards, or at, the end of the general administration provisions, as it may be overlooked (especially if right at the very end).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I have a client who left his grandson 10% of the estate, contingently on attaining 21. Grandson is 14 and STEP provisions were not incorporated into the Will, or any other administrative provisions.
I had thought this would be an RPT initially. Is it the case that this could also be an IIP if s.31 means he is entitled to income - presumable this will only be once he is 18 and it will begin an an RPT first and then be an IIP when he is entitled to income from 18?
Is it the case that where there is a contingent interest in a Will of say 25 and the beneficiary is already 18 at the date of death that the interest is not in the RPR but taxable as an IPDI?