I have come across a trust contained within a Will where 50% of the residue is left upon protective trusts as set out in Section 33 (1) (i) Trustee Act 1925 for the deceased’s daughter.
My understanding of this is that the daughter effectively has an interest in possession for the rest of her life or until an act of forfeiture has occurred. Usually when the interest in possession determines a discretionary trust would arise.
The wording in this Will states that upon the interest in possession determining, the capital is held for the deceased’s son.
The wording also includes an overriding power of appointment of capital for the daughter from the trust during her life.
Is this still seen as a valid s33 protective trust and taxed as such by HMRC as it does not include the discretionary element?
s33 TA 1925 is about income not capital. An overriding power of appointment over capital will not vitiate the status of the trust as protective and will not undermine the objectives as the power is discretionary. The discretionary provisions about income are in s33 itself.The IHT position is set out in s88 IHTA and see IHTM42804. As was the case with A&M trusts the existence of the QIIP, if there is one, must not be obviated by the mere existence of the power even if that would happen on its exercise. This is usually done by careful drafting.
These trusts have fallen out of favour because of the need to identify a forfeiture event (and give trustees a power to disapply it) which can be far more flexibly provided for by a standard discretionary trust plus a letter of wishes.