The remainder at 2 (b) is, semble, an asset of the NRB trust. It is currently a future interest and so is excluded property as a reversionary interest: ss.47 and 48(1) IHTA.
A distribution from the NRB trust will only wind it up if both assets are appointed out.
It is also such an interest in the life interest trust of residue.
As you say the drafting is convoluted and, it may also be inept, because it the DT remainder to the life interest trust should have been expressed not as a reversion to the NRB trust but separate trusts to like effect as those governing the NRB trust fund (and probably excluding the SS as an eligible beneficiary). Perhaps this is indeed so and if it is then the question is as convoluted as the drafting.
- One unitary reversionary trust
The trustees of the NRB fund can fully distribute it to the spouse and trigger s.144. They can’t also distribute to her the reversion to the residue because it would be a nonsense: how can they transfer an interest to her in her lifetime which does not arise until she dies? When she dies, although an eligible beneficiary of the NRB trust, no further appointments can then be made to her. The Residue (less the portion for the children) will revert to the NRB trust and will become an RPT and the nightmare fiction of s.80 will apply. She will be the settlor, so her cumulation immediately before death will apply to future exit and TYA charges, but the commencement of the settlement will be the deceased’s date of death.
The remainder to the residue trust could be appointed out as a first step. This must be done by the NRB trustees unless the residue trustees have a power of appointment over capital: s.32 TA 1925 is not available as no one is entitled to capital of a DT.
An anomaly is that at this stage part of the residue is prospectively held on the NRB trusts of which the SS must be an eligible beneficiary (or no appointment within s.144 could be made to her of the NRB fund). A fixed appointment out of the DT over part of the residue could be made to her (which she could leave by Will) or to another beneficiary. At least this would permit the NRB DT to “disappear” altogether because the residue trust would then have only fixed remainders. The remaindermen could, during the lifetime of the SS, dispose of their remainders free of IHT and CGT.
2 Two separate and distinct but similar trusts
In this case the NRB trust could be exhaustively distributed within s.144. The DT remainder to the residue trust would be self-contained so that the trustees of that trust would be the appropriate persons to exercise the discretions it conferred and could tidy up the remainders by fixed appointments if they considered that desirable at any future date. If done during the lifetime of the SS it would make s.80 redundant (for what that is worth). That section only applies if an RPT arises on her death.
A curiosity is that SS may herself be an eligible beneficiary of the residue remainder DT, while alive. That would depend on the precise drafting of the incorporation by reference of the NRB trust limitations: she will presumably be such unless specifically excluded. The drafter of this gem may well have overlooked that point.
Jack Harper