Deed of Variation

I have been approached by clients whose mother died a little over 2 years ago. She left a will with a Nil Rate Band Discretionary Trust. Unfortunately the class of beneficiaries has been defined very narrowly, there are only two beneficiaries living, there is no scope to add beneficiaries and no scope for new beneficiaries to be added as a result of marriage birth etc. What my clients want to do is add their children as potential additional beneficiaries, there is no intention to benefit these children immediately but the clients want to freedom to benefit them in the future without it affecting their own Inheritance tax position.

Under the rule in Saunders and Vautier I believe that the two beneficiaries could vary the dispositions but as it is more than two years from death Section 144 ICTA would not apply.

I think two questions follow from this:
1.Am I correct in thinking that my clients could make a variation of this sort and
2.If I am correct what is the consequence. Is this some sort of disposal by my clients or is it simply a change which can be ignored for tax purposes

Anthony Tahourdin
Herrington Carmichael

Whilst there may only be 2 beneficiaries/objects of the NRBDT currently living, are they the only persons who might benefit from the trust?

Should they both die before the trust is wound up, who will benefit? There may be a specific default beneficiary, or the trust fund will fall into residue.

It is not unusual for an NRBDT to include a default in favour of issue if the immediate class is limited.

Unless the trustees appoint to the 2 named beneficiaries, those entitled upon the death of the beneficiaries (or termination of the trust period) would also need to be party to any variation of the terms of the trust. If the 2 beneficiaries referred to are not the only potential beneficiaries, they cannot rely upon Saunders v. Vautier without the concurrence of those other persons (some of whom might not yet be in existence). Care, though, as if the trust fund were to be appointed out to enable the class of beneficiaries to be extended, this could be a fraud on a power and, therefore, voidable

If it is possible to vary the trust to bring in more beneficiaries, my understanding is that those varying the trust will be the deemed settlors. Having said that, there may be ways to minimise any potentially negative tax implications.

Paul Saunders