Flexible Life Interest Trust Appointment (again)

Trusts Discussion
1

Hi,

I am dealing with an estate where the deceased left his Estate on a life interest to his spouse with the remainder then held on a discretionary trust for a number of named discretionary beneficiaries, including his spouse. The Will includes an overriding POA.

My understanding is that S144 would not apply to any appointment due to an intervening Life Interest, furthermore, an appointment by the Trustees to terminate the Life Interest and appoint the assets out would fall foul of S142 and as such be a PET by the life tenant.

My understanding is that the Life Tenant could enter into a DOV to disclaim their life interest, to which S142 should apply to the the variation the Trust would then be discretionary and if assets are then appointed out within 2 years this would also negate a potential charge to IHT (unless I have read this incorrectly).

From looking at IHTA84, I was wondering if my reading of Section 52 and 53 was correct in that, would this exercise of simply terminating the life interest and appointing the assets to the spouse not be exempt to a charge under S53(4) of IHTA84 due to the widow of the settlor becoming absolutely entitled and the fact it is an IPDI created after 220306 as under S52(A)? I might be completely off track here but it does appear to read that way.

Any comments are greatly appreciated.

2

Yes, the IPDI excludes the operation of s.144 HTA.

If the widows life interest is removed, the discretionary trust regime will apply, so that either she will make an immediately chargeable transfer or, if s.142 IHTA applies, spouse exemption is lost on the death.

If s.142 IHTA were to apply, so that the discretionary trust is deemed to have arisen on the testator’s death for IHT purposes then, yes, s.144 would apply to any distribution within 2 years of the death.

As the IPDI arises under the will, it is a qualifying life interest so that an absolute appointment to the widow would have no impact for IHT purposes.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals