A dies leaving his entire estate into a Discretionary Trust.
Within 2 years of death, the trustees appoint that half of the estate is held on a life interest trust for a child.
Is there now one ‘mixed’ Trust, half held on discretionary trust terms and half life interest terms, or is there now two separate Trusts?
The Trust or Trusts will need to be registered with HMRCs online trusts register in due course.
I would appreciate your thoughts.
Ihsan Ali
I Will Solicitors
What is the remainder to the life interest?
The discretionary trust
IMO you have two separate trusts resulting.
Patrick
Without seeing the documentation, it sounds like one trust two funds. So one TRS entry.
Presumably the objective was to create an IPDI for the minor so excluding s.31 TA 1925 or else it would be a NQIIP. A life interest does not come within s.71A IHTA.
Excluding s.31 has an income tax effect: 50% of the trust income will not be taxed at 45% with a tax pool but will be taxed as the minor’s own income tax year by tax year as if an adult, with credit for any tax deducted at source.
Trustees can retain the income or pay it out to a surviving parent if the trust contains the usual parental receipt clause but must pay any remaining balance to the LT on attainment of age 18. The usual clause does not extend to a guardian but trusts often give trustees power to add or expand admin powers. They can safely pay income to a minor LT, especially if close to 18, provided they reasonably take the view that it will be used wisely.
Strictly by excluding s.31 the trustees would need another bespoke clause to use income retained for the minor’s benefit. They will lose the right of retention if they mandate the income so that would seem a risk unless the minor is close to 18. Often the minor will have no tax liability but if they do no sane Chancery judge (yes, there are still some left) is going to censure a trustee who uses the LT’s income to pay off their uncontested liability to HMRC.
S.144 with reading back has no CGT equivalent but there will be no deemed disposal for CGT as the appointment does not trigger an absolute entitlement.
RPT IHT chargeable events will only apply to the relevant property in the DT. Unless the minor has a NQIIP in which case the entire trust fund will be relevant property.
Jack Harper