We’re administering a discretionary trust created under a Will, and the 2-year deadline under section 144 IHTA 1984 is approaching. The trustees intend to appoint out the whole of the trust fund within the two-year period, and we’ve identified the beneficiaries who are to receive the appointments — however, we have not yet been able to finalise the exact proportions each beneficiary is to receive.
This is due to outstanding tax and financial information, and we’re still awaiting figures from the accountants (e.g. relating to share values, CGT, etc.).
We are considering executing a deed of appointment now (within the two-year window) that confirms:
•The trustees’ decision to appoint the whole trust fund, and
•The named beneficiaries,
but that defers the allocation of exact amounts/shares to a supplemental deed or trustee resolution once the financial information is finalised (which would be after the two-year period).
My questions are:
1.Is this approach valid for the purposes of section 144 IHTA 1984?
2.Does the supplemental deed (confirming proportions) also need to be executed within the two-year deadline?
3. If not, what are the consequences of deferring the confirmation of proportions until after the two years has passed?
4.Is there any recommended wording or structure to ensure the initial deed of appointment is effective, even without fixed values?
Any thoughts or practical experience with similar situations would be much appreciated.
It sounds to me as though the deed of appointment will merely continue the discretionary trust (or, perhaps, create a new discretionary trust), so there will be nothing to which s.144 can apply.
Maybe consideration should be given to identifying the extent to which the estate could be distributed now, and the deed of appointment deal with that, leaving a somewhat lesser value within the estate/discretionary trust to be appointed out once the final figures are ascertained. Such arrangement should reduce (or, perhaps, eliminate) any IHT exit charges if the final solution is not in place within the 2 year window.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
It sounds pointless as you are just appointing a discretionary trust fund onto further discretionary trusts for a smaller class of beneficiaries. s.144 can’t apply as none of the events in 144(1) will occur and, even if it did, it would just read back slightly different discretionary trusts.
You could give the beneficiaries defeasible IPDIs in specific shares, to be varied by a revocation and re-appointment at a later date but bear in mind that:-
the revocation and re-appointment would be a deemed PET to the extent a share was diminished;
an absolute re-appointment would be a CGT disposal without availability of holdover relief (as its no longer an appointment from a relevant property trust);
a re-appointment onto further (non-absolute) trusts, while probably pointless, would also be an immediately chargeable transfer.