Can a payment be made to a deceased beneficiaries estate

Trusts Discussion
1

I am instructed by the trustees of a QIIP trust set up by a living Settlor in 1999. The trust was assigned the right to receive the future proceeds of a whole of life policy.

From its inception, the terms were to hold the income of the trust for Beneficiaries A & B. Then, after the death of the settlor (triggering the payment of the life policy proceeds into trust), the trustees are given a 2 year window to exercise discretionary powers of appointment of the trust capital in favour of both A & B and also wider family members, in such shares as they see fit. If no such appointment is made, the capital then vests in A & B equally as remaindermen at the end of that 2 year window.

The current issue is that Beneficiary A predeceased the Settlor, and therefore died when he only had a vested right to receive income rather than capital. We are now in the 2 year period and the Trustees would ideally like to pay 50% of the capital proceeds to A’s estate. There is no power to add beneficiaries to the trust nor is there power to appoint capital to the personal representatives of a deceased beneficiary.

My question then is are the Trustees able to exercise their overriding powers in favour of the estate of a beneficiary who otherwise had no vested interest to receive the capital?

2

I don’t think you can use the overriding powers in the way you describe. However, at the end of the two year period, a half share of the capital will vest in the estate (representing the falling in of A’s reversionary interest in one half the trust fund). The trustees may be able to bring that two year period to an end now if there is a power to declare a new trust period and/or a power to disclaim any future exercise of the overriding powers. That will achieve the result you appear to want.

3

Thanks Paul. I had come to the same conclusion, in fact that was my intial view and I since found some commentary from JK QC in Drafting Will Trusts that confirms this. My client was concerned since the Prudential (whose trust precedent this is) have advised that the powers can be exercised in this way. But then they also advised that the vested right to receive income had the same capital value in A’s estate as half the trust fund!

Unfortunately bringing to an end early no good since the trust is drafted such that the capital remaindermen only take if also alive at that time. I am also not sure that capital payments can be made to a remainderman’s estate unless that right was vested prior to their death.