I am dealing with an Estate which leaves half the residue as follows:
1.1 Upon trust to pay the income from the same to X for life and after the death of the said X
1.2 upon trust for such of her children Y and Z as shall survive the survivor of me and the said X and if both in equal shares absolutely.
The life interest trust does not contain an overriding power to appoint out capital from the Trust and the Will itself does not contain the STEP provisions.
X does not want the life interest as she does not require the income and would instead want Y and Z to inherit the capital from this half of the residue. I was considering whether a Deed of Release might be appropriate to end X’s life interest but my concern is the wording of 1.2 - will her releasing her life interest mean that the children wouldn’t immediately inherit because in effect on the above wording they have to survive the Deceased and the sister to inherit?
If there is nothing in the trust document would section 32 Trustees Act 1925 not apply to enable to trustees to advance the capital to the remainder beneficiaries with the consent of the life tenant?
There is also Saunders v Vautier which enables the trustees who together have an absolute interest in the trust and have capacity to direct the trustees to close the trust and appoint out the assets.
Bear in mind there can be CGT on closure of the life interest trust and and lifetime gift/PET by X so if you are within two years of death a deed of variation may be more appropriate than closing the trust so that it is deemed to come from the deceased on death rather than X.
I agree about s32. The LT has an IPDI so that would be a PET without hold-over relief for CGT, but there may be no gain above the OMV at death of any chargeable assets. If the children are minors a settled advance may be desirable. A s.32 advance can be made to a contingent capital beneficiary, 100% of presumptive share if the date of the trust permits.
Given the wording of the remainder the children have contingent interests and if they predeceased the LT either the default gift over would be triggered or a partial intestacy. That rules out S v V and a variation and means a release by the LT would not accelerate the remainders, exactly as anticipated.
Sorry to revert again on this post but do you think I can prepare a Deed of Release for the life tenant to give up her interest (which I know will be a PET) and then a separate Deed of Appointment to accelerate the remainderman’s interest so they get the funds now?
This just seems the wrong order to me. If you are worried about any party changing their mind halfway through the operation why not have a single deed dealing with everything which will only be valid once every party has signed? Or if for some reason you wish to have 2 documents make each conditional on execution of the other.
Sorry to revert again on this post but do you think I can prepare a Deed of Release for the life tenant to give up her interest (which I know will be a PET) and then a separate Deed of Appointment to accelerate the remainderman’s interest so they get the funds now?
Thank you Jack. Makes sense to draft one Deed as you say.
One last question - do you think as an alternative she could disclaim the life interest given she hasn’t benefited yet? Do you think that would still be a PET?
She can disclaim if she has not received a benefit. There is no time limit. This is not a PET as it is not a TOV at all. But won’t you lose retrospectively the spouse exemption on the prior death: a disclaimer would result in a non-spousal transfer to the trust: s.93 IHTA That is likely to make you extremely unpopular with clients and insurers!
Thank you Jack. Makes sense to draft one Deed as you say.
One last question - do you think as an alternative she could disclaim the life interest given she hasn’t benefited yet? Do you think that would still be a PET?
You need to be very sure that no benefit has been received e.g. income or occupation of land.
I would appoint the fixed remainders before the disclaimer so that there is absolutely no chance of any intervening interest becoming operative and establishing a necessary consent under s.32.
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