I should be very grateful for some pointers with regard to the following:
The will of the first of a couple to die contained a flexible life interest trust. The survivor received the income as of right with the trustees having a discretion over capital. The trust does not come to an end on the survivor’s death
but can continue for a period of 80 years.
The survivor has now died. The trust contains assets with a value of some £1,000,000.
My understanding is that the trust now becomes a relevant property trust. If the trustees exercise their discretion and distribute the assets now, will they be subject to the usual exit charge?
If the trustees agree that they hold the assets on bare trust for the beneficiaries in accordance with the provisions of the letter of wishes left by the first to die, would this avoid any exit charges on later distributions to the beneficiaries
– the trustees want to wait for the IHT position to be finalised.
If so, can this decision be recorded informally, or must it be by deed?
Going forward, does the 10 year period run from the date of the life tenant’s death?
Jobling Gowler Law Ltd
Your understanding that the trust becomes relevant property on the death of the survivor is correct and yes there would potentially be an IHT exit charge on winding up the trust and distributing the assets, although it would probably be fairly small since the effective rate is pro-rated down to reflect the period of time the trust has been relevant property, which would appear to be not very long since that period would have commenced with the death of the life-tenant.
I am unable to comment on the legal position as regards your next query and you have not mentioned what the continuing trust terms are, although just because the trustees agree with something does not necessarily make it so - I would imagine that they could only hold trust assets as bare trustees if they had distributed the assets - that would effectively be the same as above.
The 10 year anniversary date would run from the first death - when the trust was originally created.
Further to Maxine’s comments, the trustees will not be able to finalise the IHT position of the trust until after the assets have been appointed out, in view of the fact that this would appear likely to give rise to an exit charge.
With regard to the mechanism for the trust assets to be held upon bare trusts for the beneficiaries, this will depend upon the terms of the trust instrument. It is not unusual for the trust instrument to direct that such action be dealt with by deed. However, even if the trust instrument does not require an appointment be made by deed, I would generally advocate the use of a deed rather than a trustee resolution.
Provided that the appointment is not made within 3 months after the date of a 10 year anniversary, CGT hold over relief should be available.
Yes, the trustees can probably exercise their power of appointment over the reversionary interest (i.e. subject to the life interest) so that on the death of the life tenant, the trust fund immediately vests in the beneficiaries absolutely.
Whether this has to be done by deed or can be done by resolution depends on the terms of the trust but it is likely that a deed is necessary/desirable.
Osborne Clarke LLP