I am dealing with a matter where the deceased died in 2017. We handled the administration of the estate at the time.
The deceased’s Will set up an IPDI for her brother, allowing him to continue to live in her property for the rest of his lfie and he is entitled to the income for the rest of his life.
The brother lacks capacity and is now in a care home. he is 83 years old. The property has since been sold.
The trustees want to pass some entitlement to the remainderman to reduce the IHT liability when the brother does eventually die.
The brother’s neice has a PFA LPoA for him, although she is not a Trustee. Can she/the Trustees use this to advance the remainderman’s entitlement to him whilst the brother is still alive? What limitations are there and do they need to apply to the Court to do so?
1 Do the trustees have power 2 If they do should they exercise it and 3 Has the attorney any role?
1 Power?
Do the trustees have an overriding power of appointment and, if so, does, it require consent and, if so, from whom? If there is no consent requirement the trustees can appoint to the remainderman provided there are no other limitations in the trust deed. It seems unlikely that this would be “deprivation of assets”. The power is an integral part of the deceased’s gift by will and must be taken to evince an intention that it might be exercised with the very consequence that the quantum of income for the LT might be thereby reduced or eliminated. It is thus the deceased doing the depriving not LT.
If the life tenant must consent, and this would also be necessary if only s32 (1)(c) TA 1925 was in point, can he do so given his incapacity? If despite that he can, then he must. My own view is that the attorney cannot. The consent is tantamount to a gift. s12 MCA is not in point. Such an event is not mentioned in OPG2 or PN7 but it quacks like a gift and the attorney should accept that the COP must be engaged. Is consent in the LT’s “best interests” under s4 MCA? The appointment/advancement would be a PET if the remainder was absolute or a CLT if not. In either case the IHT would fall on the the capital; the benefit of 7 year survival or taper relief only benefits the remainderman financially, although an LT with capacity might well consent. There might be a benefit to the LT of disaggregation from his free estate. Unless that alone is sufficient to meet his care costs the consent looks like a “deprivation”. It looks even more like it if the trustees have a power to appoint to the LT but again only if his consent is required (which would be unusual).
2 Exercise?
If the trustees have a power they must nonetheless decide whether to exercise it and it is a fiduciary power. The Settlor’s wishes if known are relevant. They may be obliged to strike a balance between LT and R but the trust instrument may exclude that. I do not think they owe the care home or the local authority any duty in deciding whether to do so or not. They must surely consider in the round what detriment might befall the LT if this income dried up (or a source of capital if there is a power to appoint to him) as a result of the exercise (or choice not to exercise). Or by investing otherwise for income if they also have that power. If LT had capacity there might be room for compromise if Saunders v Vautier was relevant: splitting the capital actuarially or buying out LT with an annuity. Whether the COP would go for that would need specialist advice.
I am assuming that the trust fund is sizeable, and/or LT has a big cumulation, and/or big free estate, so that a failed PET/ CLT would produce a significant IHT charge. There may be some CGT on absolute entitlement to contend with.
Another aspect that might be borne in mind is that if the release of the life tenant’s interest in the trust fund, or the advancement of the remaindermen’s interest (however it might be described), becomes a failed PET, the trustees will have “first bite” of the life tenant’s nil rate band (and maybe also of any transferrable nil rate band) with the result that the life tenant’s own beneficiaries could pay 40% IHT on the entire estate.
The significance of this to the situation will depend upon whom you are advising.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals