I have an estate with 2 executors who are also the beneficiaries.
There is a significant CGT liability on the various investments.
One of the clients doesn’t want to consider a deed of variation or a Deed of
Appropriation and is happy to pay the CGT on his share f the investments.
I assume that there is no problem with one of the beneficiaries being responsible for the CGT on their share of the investments ? ie encashing half of the investments?
For the other executor/ beneficiary we are considering doing a Deed of Appropriation and passing some of the assets to his spouse.
As I understand it the Deed of Appropriation would allow the executor/beneficiary to encash the assets over the years utilizing his CGT allowance. I wonder if members could assist me in the process. The other executor wont want to continue to be involved. I guess I don’t understand who the investments are appropriated to.
Also if the executor/beneficiary wants to utilize his wiles CGT allowance what os the order of events in that case.
In order to use the CGT allowance for the spouse is it correct to say
The simplest solution may be for the assets to be appropriated in equal shares to the two beneficiaries, and they can then sell over a number of years using their annual allowances. They may also be able to give assets to their spouses or civil partners if they have them, to increase the available allowances.
If they need to sell quickly then a DoV may be a way to increase the annual allowances available, but not if there is a pre-arrangement for the proceeds to be given back.
If the residue has been ascertained then the PRs automatically hold the assets comprising residue as bare trustees for the residuary beneficiaries (ie the beneficiaries then possess the beneficial interest in the assets comprising residue). For CGT, any sale is made by the residuary beneficiaries (who possess the beneficial interests). The sales may be made by the residuary beneficiary after acquiring legal and beneficial title or by the residuary beneficiary simply requesting the PRs to sell on their behalf (albeit legal title remains with the PRs).
If a residuary beneficiary wishes to mitigate their CGT liability on sale they could consider transferring a percentage of their beneficial interest to their spouse (and/or phase disposals over more than one tax year).
The appropriation is made by the PRs, qua PRs, to each residuary beneficiary. There is no particular form an appropriation must adopt.
Once appropriated, why will the executors continue to hold the investments on bare trusts?
In most cases the investments would be transferred into the names of the beneficiaries then entitled. The beneficiaries can then deal with their share of the investments as they might wish, without the need to seek the agreement of a third party.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I addressed this point tangentially in a post about the need to register. Was an appropriation out of an express trust apt to create a bare trust? My conclusion was that, even if it did, registration was not required. Depending on the nature of the assets in an estate and the type of beneficial interests in it there may occur a moment in time at which a beneficiary acquires an enforceable right as against the PR’s to call for them to do whatever is necessary to complete or perfect that right. What needs to be done depends on the asset e.g. from registration at the Land Registry to a new V5C for a car or a stock transfer (of appropriate manifestation) for investments. Before that actually happens, what is the correct legal analysis of that right?
The answer depends on the precise content and purpose of the law in question. CGT has a particular definition schematic involving idiosyncratic concepts of settled property, acquiring as legatee, and being absolutely entitled as against a trustee or PR. Bare Trust is not mentioned. A lay person however might well better understand this as a bare trust. If legislation required one to identify a “bare trust” and if that term was not further defined (e.g. as to whether it was “express”) there might well be an argument that the enforceable right referred to above did not subsist under one such. Not every equitable right subsists under a trust. For succession the key issue is whether the right is enforceable rather than its classification.