Distribution of Residue and Income

Trusts Discussion
1

We are trying to assist executors of a will where the net estate is about £1m+ and the will leaves the residue after expenses to the Trustees (defined as those executors who prove the will) "to divide the residue between those charities of my executors’ choice and I express the wish that they take into account any letter of my wishes which I may leave before my death.

The LOW says “please distribute the remainder amongst charities/entitles below, not necessarily equally, (more to the first 5 or so), plus others of your choice, if you so wish, with humanitarian, environmental or preservation aims but not for the benefit of domesticated animals or just one person!” and then goes onto to list 20 charities. The Executors have extended that list to 25 charities.

There are two points issues which I would appreciate your comments on. Firstly, the Executors are wanting to make a fixed payment to some of the charities with the balance being share by two or three. Our view is that the word divide should be given its natural meaning so that each charity should take a share of the residue and not a fixed amount. Do you agree?

The second issue is in respect of the income received in administration. the executors want to pay this to one of the charities in its entirety. This would not be the case normally but does s650(3) allow this to happen for Income tax purposes? Is this a Discretionary Interest in the context of that section? I have looked at TSEM7660 and SP4/93 and talked it through with colleagues but we are just not sure.

Thanks in anticipation

2

I am not inclined to interpret “divide” as limiting the chosen charities to receiving only a proportionate part of the estate, but suggest it can be applied to give some charities a fixed sum.

If it is intended to enable one charity to be deemed to receive all of the estate income, I believe that all of the other charities will each need to be given a fixed amount, with the charity receiving the income to be given the remainder, so that it has in effect the sole residuary entitlement.

Whilst it might be possible to create something along the lines of a flexible interest in possession trust with the chosen charity entitled to the IIP, and the capital appointed out to the other charities, I have doubts as to whether that would achieve the objective but feel certain it will create more work than is necessary.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

3

Thanks for your comments Paul