I have a Life Interest Trust (80 year trust) settled in 2003 where the settlors were also the life beneficiaries of the primary trust (the initial beneficiaries). The trust included a power of appointment and the power to transfer assets to any other trust or settlement. The secondary trusts (on the death of the initial beneficiaries provides for the division of the trust into equal shares for the settlors children providing them with successive life interest in the income of the trust. and subject to this each share can divide equally between any children subject to attaining age 25. There is provision for an "ultimate default trust " whereby the trust is held in equal shares for beneficiaries alive at the end of the trust period and subject to this the last survivor of those individuals absolutely.
The original settlors and life tenants have now died so the secondary trust is applicable.
Ae there any views regarding (1) the taxation of the current secondary trust and (2) there is a plan to transfer the trust assets into a new discretionary trust are there any views on this given that this is a pre 2006 trust.
If the original settlors and life tenants died post 21 March 2006, the trusts will now be subject to the IHT relevant property regime.
Did the power of appointment referred to survive the death of the settlors? If not, then the trusts will be fixed.
If the power is still exercisable, s.81 IHTA 1984 will apply on the proposed appointment to a discretionary trust. One effect of s.81 is that there will be no IHT charge on the appointment. However, I understand that CGT may be an issue as gains cannot be held over using s.260 TCGA 1992.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thank you Paul - that’s really helpful.
I think the power of appointment survives the death of the settlors as it states:
Subject to Clause 4 (Clause 4 relates to the primary trust fund and simply states that the trustees shall pay the income of the trust fund to the initial beneficiaries during their lifetimes) during the trust period the trustees shall have the power to appoint by deed revocable or irrevocable that they shall hold any of the trust fund on trust for the benefit of any of the beneficiaries on such terms as the trustees think fit. Those terms may include discretionary trusts and dispositive or administrative powers exercisable by any person and provide for the transfer of any assets to the trustees of any other trust or settlement wherever established from which a Beneficiary may benefit whether or not persons other than Beneficiaries may also benefit.
Thank you