Death of remainder beneficiary

Trusts Discussion
1

I am dealing with a piece of agricultural land which has a life tenant living on it (in a caravan).

The life interest was created in the Will of Mr I. The clause is as follows:

“I GIVE my yard and buildings known as x unto my children A, B, C and D in equal shares absolutely subject to their permitting Mr E to occupy my premises rent free he being responsible for any outgoings for my premises but not for insurance thereof for his life”

The Executors were C and a family friend. The land is registered in the names of A, B,C and D.
C has now died intestate. She was alive at her father’s date of death. The family would like her share to pass to her two daughters.

I have two questions:

  1. Is it C’s spouse that needs to enter into a deed of variation to vary the intestacy rules and allow the daughters to inherit or is it the remaining siblings that need to agree to the variation of the trust?

  2. Can the land be sold and the life interest remain in place? A local land agent has advised that it can!

Any help would be appreciated.

Anna Howat
Chattertons Solicitors

2
  1. It sounds as though the children’s (A, B etc) interest vested immediately so the property in C’s estate is a reversionary absolute interest in one quarter of the property. Assuming her entire estate passes to her widower, it should be him that varies his estate in her favour.

Further, if the interest is truly reversionary, you might consider a gift by the widower rather than a deed of variation - or perhaps only make the election for CGT - on the basis that the gift would be exempt, preserving C’s NRB to be transferred on the death of her widower.

  1. A, B, D and C’s PR’s could in theory sell their equitable reversionary interest but this is unlikely to be of interest to a buyer. I am not quite sure if they should be holding the legal title but, as they are, they must be quasi trustees so I would suspect that any sale of that would be in breach of trust - particularly as a buyer would ordinarily overreach the interest of Mr E, leaving him with no rights enforceable against the buyer (but a claim for breach of trust against the sellers if he were ever removed from the land).

I would be surprised if the land agent has analysed what appears to be quite a thorny issue but I suppose it may be possible if the buyer were constituted a trustee in a document repeating Mr E’s rights - it could still leave the sellers on risk if the buyer breached his obligations and does not sound very workable in practice.

Andrew Goodman
Osborne Clarke LLP

3

  1. C’s reversionary interest is part of her estate on her intestacy, and must be dealt with as such. Who enters into the DOV depends on who is entitled under the intestacy based on the values of the assets. If all goes to the widower, then he must do the DOV, although it is excluded property for IHT.

  2. It is a right of residence only. So if E vacates his entitlement ends.

Simon Northcott

4

It would appear that the reversionary interest forms part of C’s estate, passing according to the intestacy rules. You will probably need an actuarial valuation report to estimate the market value for IHT purposes.

Any trust can be wound up assuming all the beneficiaries agree (that would include Mr E) and in that event the land could clearly be sold in the normal manner as there will be no life interest.

Alternatively the remaindermen can sell their trust interests which would have the advantage of directly establishing the market value of these particular interests without any actuarial report necessarily being required. However trust interests are generally more valuable to the original beneficiaries than they are to a third party purchaser.

Ian McKeever

Ian McKeever & Co Consulting Actuaries