A will creates an IPDI in the residue for the surviving spouse. There is no power to appoint capital. One of the trust assets is a 99 per cent shareholding in a limited company, the main asset of which is an offshore bond. The spouse relies on regular capital payments from the bond to supplement her income. All the remaindermen are in agreement that these payments should continue. I am not sure what the correct mechanism would be for authorising such payments. Would it be a deed of variation creating a flexible life interest trust, coupled with a deed of appointment appointing out capital from the bond?
Whilst any withdrawals from the bond would be capital in the hands of a trustee holder, how are they treated in a corporate environment?
If the company is able to rely upon the withdrawals to validly declare a dividend, then that will be income in the hands of the trustees and payable to the surviving spouse.
However, if the withdrawals cannot be used to enable the company to declare a dividend, it may be necessary to unwind the bond and adopt a more conventional investment policy, perhaps winding up the holding company also.
I suspect the funds were provided to the company by way of loan and that payments to the shareholder are actually in the nature of loan repayments. There was a scheme of that nature that was popular until the change to the tax treatment of investment bonds in the ownership of a company. Once you had withdrawn your initial capital you sold the shares in the company (paying capital gains tax rather than income tax). It would be worth checking the overall nature of the arrangement before you change it.
If I am right then a deed of variation, giving a power to pay capital to the life tenant, would seem an appropriate route to achieve what you want. It isn’t necessary for a power to pay capital to be exercised by deed, so unless the extra formality is particularly wanted, I wouldn’t make that a requirement.