Husband died in 40+ years ago leaving his residuary estate upon the trusts in favour of his “wife and issue” contained in Form 9 of the Statutory Will Forms 1925 (i.e. to wife for life with power to appoint to issue and gift over to them). Wife died in January 2015 leaving a will in which she (a) exercised the power of appointment equally in favour of their son and daughters absolutely and (b) granted an IPDI in part of her estate to the son. The husband’s trust fund and wife’s estate are of considerable value and a large amount of IHT has been paid.
The son has also now sadly died and the second anniversary of his mother’s death is only a matter of days away. His will left half his estate to be divided equally between his nephews/nieces and the other half to a charity.
The son had already received some benefit from the IPDI and so, I believe, his PR’s are unable to disclaim (and, in any event, the remaindermen and his beneficiaries are different) or to execute a Deed of Variation in respect of the IPDI under his mother’s will.
The charity are not within the class of beneficiaries in whose favour the mother could have exercised her power of appointment from father’s will trust. The nephews/nieces are within that class but any Deed of Variation which purports to exercise the power of appointment in their favour would divert assets away from the son’s estate and therefore reduce the charity’s entitlement.
Although successive charges relief is available there will still be a significant amount of IHT to pay on son’s death. Unless anyone has any suggestions, however, I can’t see that a Deed of Variation to mother’s will is going to be possible. Any ideas?
As the widow had a life interest in her late husband’s estate, the power of appointment exercised by her will cannot be varied under s.142 IHTA (s.142(5) IHTA).
With regard to the son’s IPDI in his late mother’s estate, whilst HMRC dubiously asserts that s.142 cannot be used to vary a life interest after the death of the life tenant, various draftsmen have found arrangements that HMR has accepted as valid under s.142. It might be possible for a suitable deed to be prepared, although depending on the time constraints, the difficulty might be in arranging for it to be approved and executed by all relevant parties. I understand that James Kessler QC has successfully persuaded HMRC to accept a variation of a life interest, post the life tenant’s death, on a number of occasions.
If a variation of the IPDI from the mother’s estate can successfully be achieved, it may be possible to later enter into a further deed to rebalance the interests in the son’s estate, although care would need to be taken that HMRC does not see this as extraneous consideration undermining (the previous) acceptance of the deed in the mother’s estate.
Thank you for your thoughts Paul but, in this instance, the remaindermen of the IPDI are not beneficiaries of the son’s estate. The burden of the IHT payable from the estate as a result of the nil-rate band being shared with the IPDI will fall on the nephews/nieces and not the charity which is the other residuary beneficiary. There is outstanding income from the IPDI due to the son’s estate which will increase the son’s residuary estate to the benefit of the charity (and other residuary beneficiaries). The problem, as I see it, is that the charity would therefore suffer a loss from any variation of the IPDI and it would therefore be unwilling/unable to consent to that variation unless there was a separate agreement to compensate it. I cannot see how that would not constitute extraneous consideration.
When making a variation of an absolute interest, the variation may allow the income to the date of the variation to be left with the original beneficiary, thus avoiding the application of s.142(3) IHTA.
It might be possible to achieve the same outcome when varying an IPDI, although the fact the life tenant has died could complicate the drafting. As the 2 year “window” is fast coming to a close in this particular instance, though, there may not be sufficient time to secure appropriate advice and for a suitable form of wording to be crafted to give effect to this.
If the husband died BEFORE 13 November 1974, the widow’s life interest under his will may well be exempt from IHT on her death, which means her available nil rate band can be applied wholly against her own estate.
If estate duty was paid on her husband’s death, the transferable nil rate band is unlikely to be available to her estate.