Minor beneficiary absolute entitlement

Trusts Discussion
1

Ever had the feeling you are asking a question to which the answer is obvious?

A minor beneficiary ‘A’ will attain 18 years in a few months.

The will:

“- As to a 40% share of residue to ‘A’ absolutely.”

Step Standard Provisions 2nd Edition apply.

The 40% amounts to over £200k. Executors are concerned ‘A’ may not manage the funds wisely or will be at risk of financial abuse.

Is it possible for Executors to create a discretionary trust (not by variation of the Will), the class of beneficiaries being ‘A’ and their issue?

Funds could then be held until say, aged attained 25 years, with advances as required in the interim.

John Cartlidge
Campion Solicitors

2

Unless excluded by the will, the discretion under s.32 Trustee Act 1925 could be exercised to appoint the trust fund in the manner suggested.

Paul Saunders

3

Many thanks. If it helps I did know the answer until a colleague queried it and caused me to doubt myself!

John Cartlidge
Campion Solicitors

4

This thread is very similar to Varying a "Bare Trust", with some very interesting points discussed.

I must confess I have always found the concept of any variation to a bare trust difficult to stomach. This said, I accept that there must be some rationale for protecting a ‘vulnerable’ young person by deferring their interest to a later fixed interest.

However I suggest it must take a confident practitioner who assists trustees with a ‘resettlement’ of the assets into a discretionary trust under which the ‘absolute’ beneficiary can now receive nothing.

Richard Whitaker
LexisNexis

5

TA 1925 s.69(2) presumably is the authority for reading into a trust document the statutory power of advancement (unless a contrary intention is expressed), TA 1925 s.32.

Following on from Richard’s post I do find it difficult to see how the exercise of the statutory power of advancement would be valid if under it the advancement was on discretionary trust comprising a large class of beneficiaries including of course the beneficiary of the bare trust. Not only may there be a considerable amount of time before the beneficiary benefitted in any way but, worse, such beneficiary may never in fact benefit.

How is this for the benefit of the beneficiary?

How is it determined, in the present case, whether the beneficiary “may not manage the funds wisely or will be at risk of financial abuse”.

Malcolm Finney

6

HMRC have confirmed that a bare trust is not a settlement for IHT purposes (to accord with their acceptance that a transfer to such a trust is a PET).

Therefore, if the trustees of a bare trust have available and use the TA25 s.32 powers to create an IIP trust for the child prior to their majority, then, presumably, IHTA84 s.81 won’t apply – i.e. the start date for IHT purposes of the resultant RPT will not be the start date of the bare trust.

Do members agree?

7

Notwithstanding the IHT treatment, for Trusts Registration Service reporting purposes, I would have thought that the instrument used by the trustees would unlikely constitute a resettlement, so, as opposed to ending the bare trust and registering a new trust, the bare trust’s TRS record would continue, but with various amendments thereto to reflect the new terms upon which the property is held for the beneficiary?