New topic Variation of discretionary will trusts

I am dealing with an estate of a deceased husband who left a life interest to his widow who survived him by 6 months so s144 IHTA does not apply to enable a S144 appointment to be made under the discretionary trusts A revocable life interest in a property was however then appointed to an adult beneficiary (A) We are still within the original two year period. I am considering a further irrevocable appointment of the property subject to the life interest in favour of adult beneficiaries absolutely Again S 144 will not apply to that. However, if that is followed by a deed of Variation by the adult beneficiaries providing that, in relation to that property, the will is varied so that, subject only to the life interest for the widow, it goes absolutely to the adult beneficiary , would S142 then apply to that D o V?
Michael Jepson
MJ Consultants


It is certainly possible to sequence a s144 appointment followed by a variation. I don’t actually know if the same can be said of a non-s144 appointment. I can’t see why not. The entitlement under the non-s144 appointment is still in terms of (or as a result of) the testament, and the variation would be within the two year period…

Going back to the initial interest in possession after death, was it actually accepted by the life tenant or liferenter? If not, then you could still be within s144 territory.

Dale Ross
Blackadders LLP

Although HMRC has no difficulty in accepting that an appointment to which s.144 IHTA 1984 applies can be followed by a variation of the dispositions of the estate (not a variation of the will) for the purposes of s.142 IHTA 1984, I wonder why the s.144 appointment is required.

If the appointment is necessary as the effect of the variation could not have been accomplished under the terms of the will, is this not a fraud on a power (see Wong v. Burt [2005] 1 NZLR 91 – whilst a New Zealand decision it is widely accepted as also stating the law in England and elsewhere), unless those exercising the power are not aware of the intention to make the subsequent variation?

Whilst HMRC might not raise any queries, it frequently states that it does not give legal advice and, therefore, the acceptance by HMRC of an arrangement for tax purposes, does not necessary validate that arrangement for trust law purposes.

With regard to the question of whether HMRC could accept a non-s.144 appointment and a subsequent variation, mindful that both a non-s.144 appointment and a s.144 appointment will have the same effect under trust law, I can see no obvious reason why it should accept one and reject the other.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

I am not sure it is not a variation of a disposition under the Will for IHT purposes if it is not read back under s144.

Simon Northcott

Thank you for your comments
The first point is that the intention is to appoint the property absolutely to A who is a beneficiary under the will discretionary trust, so an appointment to him would be valid and not a fraud on the power
However, because of the prior life interest which was operative, s144 would not apply so that appointment would cause an exit charge
To avoid that, the trustees’ appointment first creates, from the class of beneficiaries, adult only reversionary beneficiaries to the revocable life interest appointed to A and this is then followed by a D oV between the adult beneficiaries, A and the executors, providing that the property goes to A on termination of the widow’s life interest.
Suely this cannot be a fraud on the power to achieve the intended appointment in favour of A, a beneficiary ? Also the appointment before the D o V cannot be a s144 appointment and is therefore of no IHT effect, as the trust remains at thst stage, a relevant property trust. although it then leaves the door open to a D o V for the property

Michael Jepson
M J Consultants

Whilst not a fraud on a power, might it be susceptible to challenge under the principles established in Ramsay (WT) Ltd v. IRC [1982] AC 300, as a pre-ordained series of transactions?

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

The net effect however is to achieve a situation to enable a section 142 D o V to be made within the spirit of that relief so I doubt that it would be challenged particularly as the IHT payable would normally be limited at the most to 1/40th if the deeds are completed shortly after the life tenants death indeed the appointments could have been made during the widows lifetime but subject to her life interest

Michael Jepson