Interpretation of Asset Protection Trust - and IHT

Trusts Discussion
1

Deceased died May 2023. Widowed 50 years ago.

Deceased settled property into a trust in 2010. Was sold the trust by one of the commercial companies offering asset / care fees protection via trusts. Trustees were deceased and her son and daughter. Beneficiaries were deceased, son and daughter and three grandchildren.

Clause 2 is headed ‘Trust Income’.
States " Subject to Overriding Powers below: (a) the Trustees shall pay the income of the Trust Fund to the Settlor during her life. (b) Subject to that, if the Settlor dies during the Trust Period, the Trustees shall pay both the income and capital of the Trust Fund for the benefit of the Beneficiaries absolutely"

Clause 3 is headed “Overriding Powers” and gives standard discretionary powers of appointment over the Trust Fund"

Clause 13 is headed “Interest in Possession Protection Clause” and states (a) The provisions of this schedule shall not have effect so as to prevent a Person from being entitled to an interest in possession in Trust Property (within the meaning of IHTA 1984)"

The trust has never been registered at HMRC.
Our questions:-

  • was this a discretionary trust ab initio given the presence of ‘Overriding Powers’ or do we treat it as an IIP until the date of death.
  • would members include the property within her estate IHT accounts as an IIP or as a GROB? Would members complete an IHT 100?
  • the property is estimated as being worth between £360k and £400k. If it is a discretionary trust then we expect there will be a small IHT charge due as of the 10th anniversary.

We would appreciate members’ views.

Michael McCabe
Galloways Accounting Private Client Limited.

2

Our questions:-

  • was this a discretionary trust ab initio given the presence of ‘Overriding Powers’ or do we treat it as an IIP until the date of death.
  • would members include the property within her estate IHT accounts as an IIP or as a GROB? Would members complete an IHT 100?
  • the property is estimated as being worth between £360k and £400k. If it is a discretionary trust then we expect there will be a small IHT charge due as of the 10th anniversary.

Answers:

1 IIP as regards trust law. Mr Kessler’s precedents adopt this drafting. For Income Tax and CGT but not for IHT because post March 22 2006 IIP, so entry charge CLT (possibly within NRB). Hope client was not mis-sold ignoring IHT difference between 2 regimes. So yes for IHT discretionary trust ab initio
2 GROB only, as IIP in RPT
3 There was an IHT charge at 2020. Rate at that date applies to subsequent RPT chargeable event in 2023 when trust ended, reduced by 28/40. GROB has no effect. CGT uplift on death and s73 TCGA applies not s62

Jack Harper