Deed of variation with no reading back provisions

Trusts Discussion
1

I am trying to work out the effect of a DOV which varies a life interest over the deceased’s share of the property where no reading back provisions were included.

The deceased’s will included a life interest for his surviving wife over his share of their property with the remaindermen being his children (from previous marriage) and grandchildren who are all adults and there is no provision for minors or unborn beneficiaries. The surviving spouse and remaindermen entered into a homemade DOV which states that the deceased’s beneficial interest in the property passes absolutely to the surviving spouse but there are no reading back provisions for CGT or IHT.

Having done some research, it looks like the DOV can end the life interest trust and instead pass the property entirely to the surviving spouse but I’m not sure what the IHT effect of this would be for the surviving spouse and also for the remaindermen.

I wondered if the surviving spouse has effectively disclaimed her life interest which would result in her late husband’s share passing to the remaindermen and then have they made a PET by giving their interest to the surviving spouse? However, she can’t disclaim because she benefitted from the trust by living in the house following her husband’s death. Or has she made a PET but as she continues to live in the property, is it a GROB?

My involvement is advising the surviving spouse regarding her will and the IHT position of her own estate but in order to do that, I need to figure out what the IHT effects are following the actions taken re the DOV.

I really hope someone can help as I’ve done a lot of research and spoken to colleagues but haven’t been able to find an answer.

2

A deed of variation is a deed of gift to which certain IHT and CGT attach if the document includes the appropriate declarations.

The following comments are based ipon the interest in remainder having vested on the death of the testator

In the absence of the declarations, the deed takes effect as the gift as set out in the deed.

In the present instance, you need to understand what the deed purports to do.

if it is a gift of all their interests by the remaindermen, then s.48 IHTA 1984 should apply so that the disposal by the remaindermen is an excluded transfer for IHT.

For CGT purposes it is a little more complicated, depending on whether or not the property interest has been appropriated to the trustees.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing advice and support to fellow professionals

3

Thank you Paul. I agree that the interest in remainder will have vested on the death of the testator and it is very useful to know that s48 applies in relation to the remaindermen but do you know what the IHT effect is for the surviving spouse has now takes the property absolutely instead of an IIP?

Re CGT, I had assumed s225 TCGA would apply iro the IIP up to the date of the gift and thereafter, as she holds the entire beneficial interest absolutely, she will have PPR.