I act on behalf of the trustees of a will trust which was prepared in 2014 and came into effect on the death of the testator in 2016. The will contains a life interest in a property with the ultimate beneficiaries being “animal charities as shall be decided by [the trustees] in their absolute discretion.”
The ten year anniversary is imminent and I understand the trust may be liable to this charge, as it stands, because the animal charities are not defined as being UK registered only. Based on gifts made by the testator in their lifetime, it is evident they intended only UK charities should benefit and it appears to be an omission in the drafting.
Are the trustees able to prepare a deed/declaration to limit the class to UK registered animal charities only? The only express powers are those given in the clause quoted above.
If the trust is a life interest trust commencing on the death of the testator, are you satisfied that it is within the IHT relevant property regime and not an immediate post-death interest (which would not be subject to 10-yearly charges)?
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Why do the trustees want to limit their discretions now while the LT is alive and the trusts charitable status is of no tax relevance? Are they contemplating exercising a power of advancement/appointment in favour of a remainderman?
Thank you for your replies. I think my reference to the life interest was unintentionally misleading. The discretionary element is on the residue and separate from the LIT.
Regarding the discretionary trust, my understanding is that a 10 year IHT charge would be payable, in this case, if the potential beneficiaries included all worldwide animal charities.
Do you believe it is necessary for the trustees to reduce the potential beneficiaries to UK animal charities only to avoid this IHT charge, and is it possible to do so?
As I understand it then the residue of an estate is held on a discretionary trust, so an RPT, approaching its first TYA.
I have not seen the trust document but a DT is very likely to permit the trustees to make an appointment on the identical trusts but only to UK registered charities as beneficiaries.
If that is done s.76(1) IHTA will negate any charge on that occasion under s.65(1)(a) and at the TYA under s.64(1)(a). In view of s.76(5) the appointment should exclude any further exercise of trustee powers to benefit a non -UK registered charity.