Client has a trust which holds some shares. Three of five primary beneficiaries (there are other potential minor grandchildren beneficiaries) are receiving 1/5 of the shares with the other 2/5 staying in the trust. A corporate colleague has asked if the three beneficiaries who have received their shares can be removed as beneficiaries, so the two that haven’t remain the sole beneficiaries. I appreciate there are other minor children but for the purpose of this if we assume the 5 primary beneficiaries are the only ones.
There is no express power to remove beneficiaries and I don’t believe there is a statutory power. I also believe the presence of minor beneficiaries makes any agreement to vary the trust difficult. My only thought was to resettle into a newly formed trust, but I do not know whether that would have any adverse consequences.
If there is no power, the trustees are entitled to take the view that they will distribute in future only to the other beneficiaries’ but the theoretical position is that they should keep that under review. They cannot formally bind or fetter their discretion but if this is a DT they have a very free hand and if what they do in future is reasonable none of the 3 will have a cause of action if they receive nothing more.
Variation sounds possible only under VTA 1958. Many modern trusts have an express resettlement power and s32 TA 1925 can sometimes be used to make a “Pilkington” advance. If this is a RPT for IHT s81 will apply to deem the new trust to remain part of the original. A CGT deemed disposal can usually be avoided by deft drafting ensuring that the settled assets remain technically part of the original trust. As a deemed disposal would be a chargeable transfer for IHT (swerving the 3 month trap), hold-over relief should be available in principle.