Maybe solution is for 3 legatees to create IPDI for spouse for life by the Variation then to 3 legatees absolutely. The IPDI created by Variation attracts spousal exemption, so increases the residual share of the tricky legatee from first spousal death estate but doesn’t increase her residual entitlement from her now deceased father’s estate. As surviving spouse has already died before Variation executed I’m hoping HMRC will accept IPDI as valid. HMRC’s example 3 at IHTM 35133 is relevant.
In essence, the “Variation” is a gift. One cannot make a gift to someone who has already died.
In HMRC’s example 3, the surviving spouse is still alive, unlike in your scenario. The three beneficiaries cannot now “vary” their interests in the wife’s estate by settling their interests on life interest trusts for the husband. They would, in effect, be making gifts direct to the remainder beneficiaries of those life interest trusts (themselves), which would not save any tax.
By will Ruth leaves the whole estate equally to her children. By an IoV within IHTA84/S142 (1) the children settle £200,000 out of the estate on trust for Ruth’s spouse for life with remainder to themselves. Ruth’s spouse dies within two years of Ruth’s death.
IHTA84/S142(4) does not apply. The interest conferred on the spouse was not limited to cease within the two-year period. The fact that it did cease within that period because of the spouse’s death does not bring the variation within IHTA84/S142(4). The £200,000 settled on the spouse by the variation is spouse exempt.
Do please update us in the future how this plays out. I will be interested to hear.
Yes it is peculiar to provide a life interest for a surviving spouse who dies before Deed of Variation executed. As s.142 allows reading back to first spousal death, maybe it’s worth a try.
When numbers are crunched a settled legacy is better for the 3 residual legatees who wish to vary, than an outright legacy.