Deed of Variation Discretionary Trust and beneficiary with IVA

Trusts Discussion
1

The deceased died intestate (April 2024) and still married, 20 years after the decree nisi but no decree absolute. There were several children by different relationships. The estate was just short of £322,000. The spouse considered that the estate should be divided between the children. One of the adult children was subject to an IVA (accepted by creditors on 24.2.2021). A DoV was executed (November 2024) dividing the estate equally between beneficiaries with one share to a discretionary trust making discretionary provision for the beneficiary subject to the IVA. The estate was distributed (March 2025) and one equal share forms the trust fund of the discretionary trust.

Is it problematic that the discretionary trust was established by DoV after the IVA was in place, in order to avoid the requirement to declare a ‘windfall’ to the IVA supervisor? Although it is expressed as a discretionary trust, the intention of this trust is to prevent the funds being used in repayment of the IVA. The intention of the trustees when they executed the DoV was that the trust would be brought to an end when the IVA is certified as completed, with the intention that the trust fund would then be paid to the beneficiary who will then no longer be subject to the IVA.

Many thanks for any comments.

2

It doesn’t sound like a problem. Because the SS was entitled to the entire estate the DOV constituted a lifetime gift for property law purposes of her entitlement (presumably with reading back for IHT purposes but tax-free via NRB).

The child with the IVA was never entitled to a part of the estate under intestacy rules. The creditors have no cause of action to impugn the transfer into trust and none against the trustees, only to any income or capital appointed to the child subject to the IVA terms.

A DT is an entirely lawful way of providing for a beneficiary who is even an undischarged bankrupt at the date of gift.

Jack Harper

3

Thank you Jack. Will any income or capital appointed to the child after the IVA is completed be of no interest to the IVA Supervisor?