I am dealing with an estate in which the Will has been incorrectly drafted with the usual life interest trust error of giving the surviving spouse a life interest, but also leaving them the remainder interest as well due to the way that the trust has been worded to leave the remainder interest to residue (which passes to spouse). However, the Will contains flexible powers or appointment over the capital of the fund to the spouse and issue.
My question is: Does the trust fail due to a merger of the life and remainder interests immediately on the death of the testator, or do the flexible powers of appointment over capital prevent the interests from merging?
The HMRC guidance on this may be helpful: CG37600 - Absolute entitlement: mergers of interests: general - HMRC internal manual - GOV.UK .
Hi Rachel,
I presume these interests are vested rather than contingent?
Legal Beagle
The wife’s interest as both life tenant and remainderman are vested as they are both effective on death.
The flexible powers are expressed to simply be in favour of the wife and issue- there are no age conditions at all. The deceased’s children and grandchildren are all of age, there are great-grandchildren under 18 but I can’t see that that matters.
The default provisions of residue in favour of the children are ineffective due to the wording, but are drafted in such a way to be immediately vested if they were effective. Thanks!
The wife’s interest in possession is defeasible as, at any point, the trustees have the right to deprive her of future income. I can’t see how by combining a defeasible interest in possession with a remainder interest one can arrive at an absolute interest in the fund. That would lead to her having a greater right to income than she had to begin with. I wonder if there is any legal authority on the point. Perhaps Lewin would provide an answer.
These sort of provisions are often found in life policy trusts with standard wording. If there is an overriding power of appointment in favour of the spouse AND issue then those entitled in default of appointment (apparently the spouse here) have a defeasible interest not an absolute interest so there is no merger until the power ceases to be exercisable according to its terms. If the spouse never has any issue by the time of her death presumably the power is extinguished: Lancashire v Lancashire (1848). Whether and when a power is extinguished other than by being exhaustively exercised is a matter of construction of its terms.
Jack Harper
1 Like