The residuary estate of the deceased was left to a discretionary trust. There is a surviving spouse and adult children. The proposal is to pass a proportion of the estate property to the surviving spouse absolute as and pass the remainder of the estate into a interest in possession trust of which the surviving spouse would have the life interest therefore an IPDI. Both appointments would gain spousal exemption.
The proposal is then for the the trustees of the life trust to make appointments to the death beneficiaries during the life of life tenant therefore creating a PET.
Can the distribution from the IPDI trust happen within two years of the death or must that happen beyond two years?
Thank you
If it happens within two years, then I remember reading the HMRC manual stating something like “refer to technical” which means presumably they will look into it, perhaps as some form of binding agreement/consideration in which case it may fail. Arguably, it may fail as a pre-arranged series of transactions…
I would be uncomfortable with proceeding as stated.
Thank you Haroon.
Although there is a proposal that the appointment could happen there is no pre-determined plan or binding-agreement for it to happen just a Power of Appointment in the IPDI trust. Apologies if reference to “The proposal” was misleading.
I can’t see anything the would prevent an appointment within two years if that were appropriate as the read back under Section 144 is in relation to the creation of the IPDI trust which would qualify for spousal exemption If it were a Section 142 variation I think there would be a problem. However, I might be missing something.
Appointments out of the newly created IPDI trust can be made at anytime after creation whether within two years of death or not.
Reading back under s 144 will only apply to the property initially appointed out of the DT to the surviving spouse absolutely and that settled on the IIP trust for the spouse.
Malcolm Finney
Thank you Malcolm
I was heading in that direction because an interest in possession would have subsided in the property.
Your input is appreciated.
Stuart
I stand corrected. I was confusing the matter with a deed of variation being used to create an IPDI, which then follows with capital being appointed to non-exempt beneficiaries. I believe appointments within two years then become an issue.
As someone who has been retired over 11 years and really enjoying the Forum to keep the grey matter working, I am curious as to why Trustees do not consider Lending to surviving spouse rather than passing a proportion of the estate absolutely. A loan that is repayable from the spouse estate on death would retain the Trust ‘cloak’ and possibly help to reduce the survivors estate value on death.
This would require sufficient authority for Trustees, but assuming that is not a problem, then couples could have Wills that shield the nil rate band allowance with the gifting of the NRB to Trust, but allowing the survivor to request that the gift to the Trust is then, lent to the survivor, rather than being invested, on the understanding that the loan would be repaid from their estate on death and secured by a charge in Land Registry in favor of the Trustees.
I would be interested in any comments members wish to make.