Hi, I have the CILEx level 6 qualifications but am just starting to prepare professional wills. I believe I know the answer to this question but thought I would double check on here first.
Power for trustees to advance income and capital per ss31-32 Trustee Act 1925 can be disapplied from wills. Correct?
The client wants her estate held in trust for her niece / nephew until they reach age 30 which I’ll do, having advised her that this could be subject to change per VTA 1958 but any other thoughts on this would be appreciated.
I hope you are fully aware of the legal and tax consequences of doing this without substituting comparable express powers
1 Disapplying s31
The trustees will be obliged to accumulate any income net of tax until each beneficiary becomes entitled to it at 30. There is now no limit on the permitted period. What happens to the income if one or more fail to live until 30?
2 Disapplying s32
A beneficiary will not be entitled to a share of capital until reaching 30. I assume the gift is vested and deferred and not contingent. The trustees will have no power to appoint capital (or income) to a beneficiary before 30 however desirable. What happens to the capital if one or more fail to live until 30? Are the trust assets likely to be such as to permit each beneficiary to be paid out their share at 30?
3 Tax
Income will be liable to income tax at 45%. Capital gains will be taxed on the trustees and there will be a deemed disposal of chargeable assets as each beneficiary attains 30 unless Crowe v Appleby applies. The trust will be a relevant property trust for IHT, not an IPDI trust at any stage and there will be TYAs and an exit charge as each attains 30 .
We are not told the current ages of the beneficiaries but of course they may all be over 30 at the testatrix’s death. This type of trust is most unusual in being highly inflexible. The VTA is not a cheap or painless solution to that and cannot be regarded as a go to remedy.
An individual with capacity is fully entitled to create such a will trust but needs its consequences very carefully explained to her and fully documented or the drafter may one day have to write that awkward letter to their PI insurers.
The niece and nephew are currently 14 and 12 respectively. I will explore with the client whether she wants vested or contingent if she wants to proceed but in the meantime, I have set out the pitfalls and asked her to reconsider if she wants to make a more straightforward will.