I have a case where a life tenant has forfeited a life interest trust, thereby meaning the funds have passed straight to the remaindermen (who were the trustees). My understanding is that if the settlor now passes away within the usual 7 years, then this will be a viewed as a deemed PET by HMRC.
The remaindermen are therefore concerned that should this happen, HMRC will be trying to recover the IHT liability from them in respect of this deemed PET, potentially going directly to one of them rather than the three.
Therefore, they would like to create a Deed of Indemnity between them in order to say that should that happen, one of them can pay the IHT and then claim a third each from the other two beneficiaries (ie they are only responsible for their respective third between them).
Slightly struggling to find an appropriate deed template for this scenario, is there perhaps a textbook or web resource that anyone is aware of which could provide such a template?
The post is somewhat unclear, but prior to the death of the settlor, the intended life tenant does not have anything to forfeit, as it has not been past to that person and the original Will would then show that the assets pass in accordance with that Will.
The best policy may be for the settlor to create a codicill or a new Will to avoid any confusion.
However, if your post means that the original settlor has already past and then the life tenant has given up that right, then the remaindermen would benefit according to the Will.
My mistake, so the settlor has died and the IPDI trust has paid everything out to the remaindermen, which my understanding is would be a deemed PET by the life tenant by HMRC, hence the rest of my question.
Section 205 of the IHTA 1984 explicitly makes the liability joint and several. Your clients would normally each have recourse to the trust fund as a whole to meet any tax liability. Therefore you may consider that there is no need for a separate deed of indemnity.
Yes this isn’t to affect HMRC’s point of view or the law, just so that if one of them pays the IHT in the event that it becomes due from the PETs failing, they have a deed of indemnity between them to ensure that the other two reimburse the one who has paid.
There is no trust funds left to pay from, hence the concern.
As Tom mentioned the liability is joint and several, thus if one is asked to pay more than their own share he/she would automatically have a claim against the other(s), so what purpose would an [extra] deed of indemnity serve?
In practice, why would HMRC choose to claim from one [or two]? Possibly if one is insolvent or otherwise unable to pay - but if so then again what purpose would a deed of indemnity serve?
Perhaps insurance may offer a better route, although I am not sure if each individual will have an insurable interest in the whole potential tax liability, and leave this to those on this forum who have appropriate expertise.
Kevin Mullen