Deed of Variation & discretionary trust

Trusts Discussion
1

I am dealing with a relevant property trust which is approaching the ten-year anniversary in 2025.

The “discretionary” trust was created by a Deed of Variation, which varied an intestacy when the deceased passed away in 2015.

The trustees then distributed shares in five properties from the trust, to one of the potential beneficiaries, in 2016, which was after the DOV was put in place, but within two years of the date of death.

Are those distributions from the trust still read back as if they were made by the deceased where the trust was created by a DOV on intestacy, in the same way as they would be if the “discretionary” trust had been created in a Will?

If they are, presumably the value of those distributions would not then be brought back into account in terms of the value of the trust fund at the tenth anniversary?

Joe Pegler
Chattertons Solicitors

2

Assuming no interest in possession (basically, an IPDI) is created prior to the distribution out to the beneficiary then IHTA 1984 s 144 would apply to that distribution with reading-back ie it’s as if the will had provided for the recipient beneficiary to receive the property under the will, the DT being ignored (reading back under s142 would also occur). In essence, two “reading-backs”.

As it seems there has been no “exit charge” then the value of the distribution is not brought back into the ten-year charge calculation (s 66(5)(b)).

Malcolm Finney