Sale of reversionary interest under an IPDI

I act for Mrs X who owns 50% of Property outright and the other 50% is part of deceased Mr X’s will trust, which is a straightforward life interest trust over that share in favour of Mrs X (there is an overriding power of appointment to all beneficiaries as well). On Mrs X’s death, the 50% interest passing under Mr X’s will goes to the five children.

Mrs X wishes to buy out the five children so that the property then becomes fully hers. At this point the children are content with this. She is not concerned about her own IHT position at this point.

I am aware of the ability to assign reversionary interests and the consequences of these in the absence of consideration, but am less sure of process and what consequences may be once consideration comes into play. (Self-dealing rules in mind as she is a trustee).

Any thoughts or observations would be most welcome.

I would firstly wish to know why Mrs X wishes to do this, as if Mr X;s Will was drawn up correctly, there is no disadvantage to Mrs X, but certainly a disadvantage to the children if Mrs x is allowed to buy their interest and not conform to the Will.

Immediate thoughts would be if there is any thought of disposing of the property within the next few years. However, the children and possibly the estate of Mrs X may be far better protected by remaining with the wishes of Mr X.

Are Mrs X and the 5 children the only possible beneficiaries of the trust?

Reference an overriding power of appointment to all beneficiaries could be taken to suggest there may be a wider class of discretionary objects during Mrs X’s lifetime.

I note Mrs X is a trustee of Mr X’s will, and will be the trustee of land of the property in question. Accordingly, unless she and the 5 children are the only possible beneficiaries, the self-dealing rules may prevent her safely contemplating a purchase of the trust’s share.

I wonder if Mrs X is the mother of the 5 children, or if she is their step-mother and the proposed arrangement is intended to remove potential for friction/conflict between them. If this is the case then, if there are others beside the 5 children within the beneficiary class, it might be appropriate to consider an application to court so as to remove the potential for any of those other (potential) beneficiaries to cry “foul” and to try and get the transaction set aside.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Subject to the various comments made above, a purchase of the reversionary interest for, say, £X gives rise to a chargeable transfer on the part of the IIP beneficiary (ie the mother) of £X. Despite the purchase, mother’s estate has diminished by £X as the value of the purchased reversionary interest is not treated as forming part of her estate [IHTA 1984 s55].

Malcolm Finney