Testator (T) has wife (W) and two adult children, A and B. T makes a Will appointing W, A and B as Executors and Trustees. T leaves everything into Trust with W as the sole life tenant (entitled to the trust income for the rest of her life) and with discretionary beneficiaries being A and B and the children (all adult) of A and B. Testator dies.
W, A and B are advised by an Independent Financial Adviser that, for tax reasons, it would be to the family’s advantage if the Will is changed by deed of variation so that the entire estate passes to W, as beneficial owner.
Who has to enter into the Deed of Variation? My understanding is that it is not necessary for discretionary beneficiaries (in this case A, B and their adult children) to join in the Deed. But it would be necessary for W to do so because her status is changing from life tenant to beneficial owner and also in her capacity as Trustee? And A and B would also need to join in their capacity as Trustees?
If the class of discretionary beneficiaries is closed and they are all adult and sui juris, then it is only they who need to make the variation, as they are the beneficiaries giving up their interest.
Whilst the variation may be for tax reasons, I wonder why the testator put the estate into trust and if those reasons should be overridden “merely” for tax purposes?
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thank you, Paul and Karl for your very speedy responses. The background is that the IFA has advised that substantial (£300,000 plus) investments held by the testator were in a bond. The bond provides inheritance tax protection which would be lost if the asset passes into trust but retained if the asset passes to the testator’s spouse. There are likely to be PETs provided to the non-spouse beneficiaries.
If A and B and their children are going to receive PETs after the deed of variation, HMRC might refuse the application of s.142 to the variation, citing s.142(3).
The IFA will need to be a bit savvy when putting anything in writing, as their files would be discoverable should HMRC challenge the arrangement
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
My understanding was the RNRB wouldn’t apply if the IPDI falls into a RPT i.e a FLIT? For IHT purposes, varying the estate would be a good idea to preserve the RNRB wouldn’t it?
The only way in a Will to protect RNRB after an IPDI is for it to be followed by absolute gifts. And to ensure that Overriding Powers cannot be exercised after the IPDI owner’s death to disturb that gift. Or, if you split the residue into a QRI/QFRI part and the rest, an absolute gift in the former part.
An alternative is a DT but the trustees need to consider s144 in time. That puts them is the driving-seat and avoids the perils of a variation, which is worth a go as a last resort if the relevant parties agree to act in time and there are no critical unborns who can’t consent, which invariably makes it an alternative to a DT remainder.
Aficionados (¡como yo!) of Mr Kessler’s drafting skills are able to use his stupendous clause for an absolute legacy of “Residence NRB Assets” as defined if there is a surviving spouse with an IPDI.