I am having a debate with a colleague about a trust whereby the life tenant (testator’s spouse) of a life interest trust created by Will has died, and the children of the deceased have a vested interest in the remainder.
However, the Will provides that during the trust period of 125 years, the trustees have overriding powers of appointment as they may at any time appoint the trust fund our on new trusts in favour of the discretionary beneficiaries (the children and their descendants).
The remainder interests are specified as being subject to the preceding provisions (i.e. those relating to the life interest and overriding powers).
The life tenant has died, and the children want their money. We are debating whether or not the trust then becomes a relevant property trust and needs to be ended by appointing funds irrevocably to the children, meaning that here will be a termination charge, or if the trust just ends on the life tenant’s death with no need for an appointment out or further charge. If anyone has any views I’d be most grateful!
I notice that for some reason your name is completely absent from your email address.
This sounds to me like it should be fairly basic trust stuff. So I suggest you take specialist advice from a solicitor who is familiar with trusts. They will obviously need to see a copy of the Will/trust document before advising. They will also be able to prepare any deeds if necessary (eg if the trust didn’t end on death).
Sara
Sara Spencer Ltd, 8 Kingsway, Harrogate, HG1 5NQ
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Sara.spencer@trustandestate.co.uk
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Based on what you have said, it sounds like a life intertest followed by a discretionary trust so, yes, the trust fund may have fallen into the IHT relevant property regime on the life tenant’s death.
As Sarah says, you should seek guidance from a practitioner with knowledge and experience of such matters.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thanks for your replies. Whilst it may seem basic, I had approached the matter on the basis that the remainder trusts were discretionary (having prepared an irrevocable deed of appointment in favour of the beneficiaries) and an exit charge applies. However my colleague (consultant and former law lecturer who is considerably more experienced than I) considers that as the remainder interests are vested and powers of appointment are optional, the remaindermen have vested interests in both capital and income from the life tenant’s date of death and thus there is no need to appoint funds out nor any charge to IHT on transfer and the funds can simply be paid away. This was a bit of a curve ball and as I’ve always had helpful responses when putting any musings to the forum I thought I’d see what others views are as I’m now doubting myself!
They are vested but may well be subject to defeasance. The usual drafting is that the appointment powers survive the LT’s death. But because of RNRB will trusts of this type often now limit the duration of the powers to the LT’s lifetime. Where that is not done exercising the powers after the LT’s death will not secure RNRB and s144 is no help as the trust, though created by Will, is created by the Will of the original testator not that of the LT. Where the powers are not limited in duration an appointment to the remaindermen is essential to vest the trust property in them absolutely and should not be slavishly exercised in that way; trustees must at least consider the interests of the discretionary objects other than the remaindermen, if any. A LOW would help. The absolute appointment would be an IHT RPT chargeable event (probably at a very low rate if done promptly). A release of the relevant powers, if trustees can do that and they usually can, would still seem to be within s65(1)(a) IHTA as the act would cause the trust property to cease to be settled. Except when that happens a release is unlikely to be caught by either (a) or (b) of that section.
Jack Harper
Thanks for this Jack- that’s very reassuring! I usually limit the flexible powers to LT’s lifetime now for that reason, but this will was prepared before the introduction of the RNRB. The drafter didn’t prepare any letters of wishes to support the discretionary element of the Will, but its clear from the Will file itself that the intention was always to benefit the remaindermen. There is indeed a power to release the power of appointment included, but if that has the same effect as the appointment post death then there’s nothing to be gained there. My colleague has suggested that a release during LT’s lifetime would seem to be the answer- with the assistance of a time machine of course!
I agree. The release during the IPDI period is not a termination of the QIIP so no IHT and not a disposal of an asset for CGT. If a trustee can make an IHT disposition under s3(3) IHTA it certainly will not happen often and there is a specific exclusion in (b) for a QIIP trust
Jack Harper