Transfer between trusts

I’m acting for the trustees of a pre2006 IIP trust. The life tenant died a couple of years ago and the remainder provision is ‘for such charity or charities as my trustees may choose’. Nothing has been done by the trustees.

In addition there is an overriding power of appointment exerciseable at any time during the 80 year trust period.

The trustees want to exercise the power of appointment to transfer the trust assets to a new discretionary trust. This must be a chargeable transfer with no NRB and chargeable at 40%. I keep thinking I’m missing something?

Paul Lowery
Boyes Turner

If the overriding power of appointment is in favour of non-charitable beneficiaries and continues beyond the life tenant’s death, then it seems that the trust would have become a relevant property trust on the life tenant’s death (NB check when the next ten year anniversary is). A transfer to a separate discretionary trust (or settlement on new trusts) would then be a non-event for IHT purposes and s81 IHTA 1984 would be in point.

Paul Davidoff
New Quadrant Partners

Is the trust fund now exclusively charitable, or is there power for the trustees to add (non-charitable) beneficiaries?

If there is no power to add beneficiaries, I suggest an enquiry of the Charity Commissioner might be appropriate. In other, similar, cases the CC has required trustees to exercise their discretion to distribute the trust fund.

If there is power for the trustees to add non-charitable beneficiaries, there may also be an IHT charge on the life tenant’s death as the circumstances appear to fall outside of the parameters of s.23 IHTA 1984. However, should s.23 apply on the death of the life tenant, a subsequent appointment onto trusts which are not exclusively charitable may give rise to an IHT charge under s.70 IHTA.

Unless there are compelling reasons otherwise, I suggest the trustees consider distributing the trust fund, rather than re-settling it.

Paul Saunders