We’re in the process of administering four Discounted Gift Trusts with common classes of beneficiaries where the settlor has recently passed away. Our plan is to equalise the value of each trust by assigning offshore bond segments from the larger trust to the three smaller trusts and then appointing each of the settlors four children as trustees of their own trust, The larger trust recites the “overriding powers in relation to the residual fund as follows:
Transfer of Trust Property to new Settlement:
At any time after the death of the Settlor or the last to die of the Settlor and any Joint Owner, the Trustees may by deed declare that they hold any Trust Property on trust to transfer it to Trustees of a Qualifying Settlement, to hold on the terms of that Settlement, freed and released from the terms of this Settlement.
“A Qualifying Settlement” here means any Settlement, wherever established, under which every Person who may benefit is (or would if living be) a Beneficiary of this Settlement.
Are we safe to proceed?
It would be fascinating to learn of the strategic thinking behind this plan. Bond trusts are very light on needing post-creation administration with its attendant costs.
The quoted clauses seem to be bog standard in a modern trust and seem to give the trustees ample authority to consolidate the trusts into one as long as the need for all eligible beneficiaries of each to be in the combined class. (Some such powers dilute this requirement).
For IHT s.81 IHTA will apply, which far from reducing complexity will make it tricky as each former trust is notionally preserved in calculating tax on future chargeable events. The section does at least negate such a charge on assigning the bonds.
As regards income tax assignments for no consideration do not trigger a charge but each bond retains its unique history. The new trustees will have to pay attention to the ghastly potential concatenation of insurance years, part and entire surrenders, assignments, for value or not, and final maturity, all with the Sword of Lobler dangling over them.
IPTM is helpful with a finite slew of examples and in my experience the internal tax experts of insurance providers possess enormous tailored expertise as good as that of HMRC specialists. They have an interest in the compliance process because they have to produce a chargeable event certificate.
Why anyone would think this is overall a good idea rather escapes me.
Jack Harper