I am trying to establish whether a trust from a 1993 will is a life interest or discretionary and would appreciate any help. I wondered if it is possible that a life interest trust could have the flexibility “to pay or apply the income and/or capital or such part or parts therefore as my Trustees shall in their absolute discretion from time to time think fit and in such manner as they may think fit to or for or towards the maintenance support and advancement” This is for a beneficiary who meets the definition of a vulnerable beneficiary and on his death the trust reverts to another beneficiary absolutely. Due to the discretion in paying income and capital I had thought it was a discretionary trust but a life interest trust with an immediate post death interest has been suggested.
C P Griffiths & Partners
The wording quoted would support the existence of a discretionary trust. However, depending on the particular circumstances of the vulnerable beneficiary in question, their interest could be within the definition of a disabled person’s interest in s.89B IHTA 1984 and, if so, would be treated similarly to an IPDI for inheritance tax purposes.
It would seem that a vulnerable person’s trust would have been appropriate but whether this trust qualifies will depend on the complete wording of the trust. Clearly there is discretion which indicates that creation of a vulnerable person’s trust may have been the intention in order to avoid loss of state support (not just funding). Also, if it qualifies as a vulnerable person’s trust in the eyes of HMRC then obviously the trust will be taxed as part of the vulnerable person’s tax liability which will presumably be considerably less than the tax that would otherwise apply to the trust income. It would seem there is a lot at stake here for the beneficiary.
Richmonde House Associates Ltd
I suspect that in 1993 the testator would have been advised to use a discretionary trust, as at that date s89 trusts were hardly ever used as they were so inflexible. They have of course been made much more user friendly in recent years, and I agree that it would be more advantageous for the beneficiary if the wording could be interpreted as such!
Lodders Solicitors LLP
I am assuming that the property is a investment type bond generating income.
The life tenant has the absolute right to the beneficial interest during his lifetime. The Trustees have absolute discretion to supplement that income during the life tenant’s lifetime should circumstances so demand. On the death of the life tenant, the remaining named beneficiary takes the remaining fund value absolutely and the trust ends. The Trustees have no discretion whatsoever over the application of the income other than expenses but do as regards any capital dispositions that they may choose to apply for the lifeteenents benefit. Equally, the lifetenent has no absolute right to any capital other than the Trustees must exercise their discretion.
Paul Desmond Doherty