I am advising the life tenant (A) of an inter vivos settlement made in 1973 which provides for her to receive the income in her lifetime. Upon her death the capital passes to those children of A who are living at her death and reach age 23 but subject to any appointment made in A’s Will appointing the fund to one or more of her children and grandchildren. The settlement expressly prohibits advancement of capital.
A has two children both over 23. They each have children of their own, some of whom have reached 18.
A wishes to release her life interest in favour of her sons but the terms of the settlement prevent the remainder interests accelerating. In addition she is willing to release her power to appoint the fund by her Will. If she does release the life interest then, pending her death when, absent a valid appointment in her Will, the remainder interests vest in her sons, how must the income and capital of Trust Fund be applied or dealt with by the trustees? Should they simply accumulate income and distribute that with the capital when A dies, or is there a resulting trust of income in favour of the settlor?
What is the default position if neither child is living at her death? Is A of child-bearing age? See IHTM35048. If A does not appoint in her will or releases her power, in that event and without a default provision that might cause a a resulting trust to the settlor/their estate. It is strange (to me anyway) that the power is exercisable by A in her will and not by A in her lifetime (or by Will) or (much better) by the trustees with or without A’s consent.
There is a substituted gift to the children of any child of A who predeceases her.
A is in her seventies.
The power to appoint the fund is personal to A and exercisable only through her Will or codicil. I believe that she can release that power if she chooses to but that alone would not accelerate the remainder interests.
True but at least that default clause will operate if she fails to exercise or does so but the will turns out to be invalid perhaps after challenge or is revoked by a new will that fails to repeat the exercise. The terms prevent a lifetime Saunders v Vautier situation by using advancements or appointments to make the sons’ interests absolute. Did the settlor really want this situation, one must reflect?
If she releases her life interest it will not be a PET. So a CLT charge. Income will belong to the sons as of right as they are adults under s31 TA 1925 unless also excluded! It can only be accumulated if there is an overriding power to do so. This seems unlikely as the testators expectation would have been that A would have the income during her lifetime and would not release. Might be an argument that the contingent gift to the sons does not carry the intermediate income; then the trustees would pay tax on it and the net be retained pending A’s death, to see who was then entitled to it along with the capital. s175 LPA 1925 only applies to wills. A contingent gift in an inter vivos settlement carries the intermediate income unless a contrary intention is shown. Surely that is demonstrated by A’s life interest. The settlor cannot have attributed to him or her a contrary intention which only becomes relevant in an entirely unforeseen event?
Trust becomes RPT as the sons have NQIIPs. Not a disposal for CGT so trust fund remains settled property.
If she assigns her interest to the sons they then have interests pur autre vie but a clear entitlement to the income. Still a CLT though.
As ever comments based on [good] info supplied but without sight of document.
If A does assign her life interest to her children then she makes a CLT. Will that be at the actuarial value of the life interest or the value of the whole fund? And does s53 IHTA apply to extinguish any tax arising as a result of the CLT exceeding A’s NRB?
The remainder interests would remain unchanged and vest when A dies but would the CGT uplift be lost at that time?
If, despite all, A does decide to release or assign her life interest, are periodic charges for the resultant RPT calculated by reference to the date of release/assignment?
1 The assignment would be a termination of a QIIP so a TOV equal to the value of the property in which it subsisted (the whole of the relevant part as the case may be)
2 The gain on the deemed disposal caused by a termination of an IIP for the life of another is not excluded from charge by s73(1) TCGA as that only happens when the person who dies is the owner of the IIP. If A assigns her entire interest and dies she will not then own the IIP whose termination causes the deemed disposal. The death of an assignee during A’s lifetime does not cause a deemed disposal at all. Proportionately for a part disposal on the retained part. Where the gain is chargeable it can be held-over under s260 subject to the relief’s general conditions. No comment in the CG Manual but death is a chargeable transfer; presumably because no gain usually arises as the death of the owner of the IIP is the typical situation.
3 Periodic charges are reckoned in decades from the commencement of the settlement: the date that property first became comprised in it: s48A IHTA