Disclaiming a reversionary interest

My client is a reversionary beneficiary of a Life Interest Trust. The Life Tenant has recently died and my client wishes to disclaim his interest, in order that the Trust interest will pass to a relative, which is what he wants to happen. Does anyone have experience of disclaiming a reversionary interest following the death of the Life Tenant?

My client has been aware of the existence of the Trust and of his reversionary interest for many years prior to the death of the Life Tenant and I am not clear as to whether the reversionary interest would have to be disclaimed during the lifetime of the Life Tenant.

I am aware that acceptance of a gift or any part of it is inconsistent with an intention to disclaim and therefor the right to disclaim it is altogether extinguished as soon as any benefit has been received. Can the knowledge of the reversionary interest over a passage of time amount to an acceptance if the reversionary beneficiary knew but took no action to disclaim?

I have considered the IHT manual (particularly IHTM35165) which refers to a disclaimer of a reversionary interest after it has fallen into possession, provided there has been no express or implied acceptance. This doesn’t make reference to the reversionary beneficiary having been aware of the reversionary interest for a number of years and prior to the death of the life tenant. The manual and the relevant section only considers an IHT perspective once the validity of the disclaimer has been satisfied under general law.

In the event of the Disclaimer being valid, I assume that this would treat the original reversionary beneficiary as having predeceased the Testator, rather than the Life Tenant?

Separately, if a Disclaimer on the above ground is considered valid, my next query relates to a connected Discretionary Trust. If the original reversionary beneficiary is both a Trustee and a potential beneficiary of a separate Discretionary Trust, could there be ‘consideration’ if the original reversionary beneficiary takes a compensatory benefit under the distribution of the Discretionary Trust sometime thereafter? The additional benefit received under the Trust would not have been received if the disclaiming had not taken place. The question of consideration is not only relevant for the validity of the Disclaimer but also relevant for SDLT purposes.

I understand that for SDLT purposes the individual receiving the original reversionary interest is considered ‘connected’ to the Trustees under the SDLT provisions (Corporation Tax Act 2010/Section 1122).

Many thanks,

Alexandra Crump
Mercers Solicitors

The mere knowledge of a reversionary interest does not of itself constitute acceptance (although lack of knowledge of the reversionary interest would presumably be of help).

If, apart from such knowledge, the reversionary beneficiary has done absolutely nothing to indicate acceptance ( ie has taken no benefit whatsoever from it), then irrespective of the passage of time I would suggest that a disclaimer would be possible.

This argument is not dependent on any disclaimer having to be made during the life of the life tenant.

Assuming a disclaimer is valid then IHTA 1984 applies as if the reversionary beneficiary had not become entitled to the reversionary interest so presumably any property passes on intestacy or according to the. will’s terms.

Malcolm Finney

As Malcolm Finny suggests, unless the beneficiary has done anything that could be construed as acceptance of the entitlement, they can still disclaim.

The content of any communications between the beneficiary and the trustees might be reviewed to verify that there has been no acceptance.

A valid disclaimer of any entitlement under a will, or intestacy, will have the effect of the disclaimant being treated as having died before the testator/intestate - Estates of Deceased Persons (Forfeiture Rule and Rule of Succession) Act 2011. If the disclaimed entitlement arises under an inter vivos trust, the disclaimer could have unexpected consequences.

With regard to the matter in hand, I am wary of the suggestion that the disclaiming beneficiary might have in mind “taking a compensatory benefit” from another trust of which they are both a trustee and a beneficiary, especially as it is stated that the disclaimer would not take place in the absence thereof. I suggest that this assertion, in itself, undermines the validity of the disclaimer as the two will be inextricably linked.

Paul Saunders FCIB TEP

Independent Trust Consultant

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