M died resident and domiciled in New South Wales. Survived by husband who lived in UK.
M’s Estate bypassed husband and left - 50% on life interest to daughter 1 (J) remainder to daughter 2 (R)
other 50% on life interest to R remainder to J.
Whole of estate comprised Australian property and assets. Value AUD 3 million. Both daughters domiciled and resident in England,
J died four years ago closely followed by R.
IHT400 in both estate declared that they were beneficiaries of a trust. The IHT 418 in both estates were answered in the negative on the question of whether they held any qualifying interests in possession. In the commentary section there was a statement that they did receive an income from an overseas trust but the trust was exempt from IHT because it was an excluded property trust. I believe this was incorrect and the trusts should have been aggregated with their estates.
The Australian executors have posed the question of whether the estate has fallen into a partial intestacy re R’s 50% share. The believe that the capital in R’s half share of the estate reverts to J’s estate as J survived mother albeit she predeceased R. If the share does not pass to J’s estate it would revert to the estate of the husband under partial intestacy. Do members agree that this is not a partial intestacy and the capital in R’s share reverts to J’s estate?
When did each daughter’s interest in remainder vest – on the death of their mother, or on the death of their sister?
If the former, then on J’s death the interest in remainder in R’s fund was an asset of her estate which would have passed under J’s will or intestacy.
If J was required to survive R and there was no gift over, then it would seem to me that a partial intestacy exists and, in anticipation that it will be subject to Australian law, R’s trust fund will be distributable in accordance with the intestacy laws of the State in which the mother was domiciled/resident at the time of her death. (or the relevant state in Australia)
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
As I understand it R and J both survived mother so their remainders were vested on her death. On the later death of J she was entitled to the remainder to R’s life interest, which therefore devolved under her will or intestacy and was excluded property under the old rules in s.48 IHTA. On R’s later death there is no further IHT chargeable event for J’s beneficiaries when the underlying property is vested in them.
On J’s death R as remainderman also became entitled to the underlying trust property in which J’s life interest subsisted. It was then excluded property but had ceased to be such on R’s later death if she was then UK domiciled.
Did R and J have QIIPs? Or NQIIPs? The old definition of excluded property would have prevented a termination charge or an exit charge, as the case might be, on each life tenant’s death. They seem to have had IPDIs.
CGT would have been relevant as the two trusts were presumably non-resident trusts. Here the nature of the life interests matters as if IPDIs any gain would be washed on the death of each life tenant.
Many thanks Paul and Jack for your swift responses. My reference to the nature of the life interests was somewhat loose as I had not seen a copy of the will, which I now have. The will gave the residuary estate to the trustees to divide into two equal shares and to hold each share to pay the net annual income to the respective beneficiary during their lifetime and after their death to hold the capital and income of that share for the other sister absolutely. Mother died in 1979 and probate was granted in 1980.
I agree with your interpretations re the remainder interests having vested.