Capitalising a life interest

Trusts Discussion
1

I should be grateful for anyone’s views on this.

I have a lady who has died. She has left the matrimonial home in trust for life for surviving spouse and an investment property, which is rented out, to surviving spouse for life.

The remaindermen in both trusts are nieces and nephews as are living at the death of the surviving spouse.

The surviving spouse is thinking of capitalising his life interest in the investment property. What happens to the rest of the trust fund after the surviving spouse has received the capital sum.

I seem to be getting conflicting views:

  1. The rest of the trust fund would have to be retained until the surviving spouse dies and then paid out to the remaindermen who are living at his death; and
  2. The trust would come to an end entirely and paid out to the remaindermen, even though the Will states that they must be living at the death of the survivor.

Would it be possible to advance the capital to the remaindermen who have a contingent interest under S32 TA 1925?

Can anyone help?

Many thanks

Laura

2

The first question to ask is on what basis the life tenant is entitled to capitalise the life interest? Is this being done under a express power in the trust, or under collective agreement by the beneficiaries under Saunders v Vautier?

If the latter, since the remaindermen only have contingent interests, it will be necessary to obtain consent from whoever would receive the fund if the contingency fails, which is only feasible if they are ascertainable and sui juris. The presence of a contingent interest often scuppers this.

Strictly speaking, the trust would then continue after capitalisation (as per option 2) but in practice advancing remaining capital to the remaindermen could be done under s.32 (assuming it is not excluded in the Will) with the life tenant’s consent.