Would appreciate members thoughts on the following:
Husband died 20 years ago leaving ¼ of his estate to wife for life (remaining estate passed to wife and children absolutely). Assets held in trust for life mostly consisted of shares.
The wife has now died. Following her death dividend income has arisen on the trust assets - should this be attributed to the husband’s estate or the wife’s? As her interest ceased on her death I assume it falls into the husband’s estate?
This is the clause in the Will
The trust came to an end on the wife’s death and the assets pass absolutely to the children so the income after her death belongs to them.
It depends on what provisions apply to this trust as regards apportionment of income.
I believe the starting point would be s2 Apportionment Act 1870. This has now been abolished for “new trusts” (see s1 Trusts (Capital and Income) Act 2013, but for older trusts established before Oct 2013 (eg one created 20 years ago), s2 Apportionment Act 1870 would still potentially be relevant.
Section 2 provided that payments of income are deemed to have accrued “from day to day” over the period time to which they relate and therefore, here, they to be have to be split into that part of the income which relates to the period up to the date of death and that part of the income which relates to the subsequent period. A simple example: interest on a particular bank account held by the trustees is paid annually; £100 annual interest is paid 3 months (let’s say exactly a quarter of the year) after the date of death; this means £75 belonged to the life tenant (ie due to their estate) and £25 to the remainder beneficiaries. It works the same with rent and other types of income.
This is especially tricky with dividends as there may have been an interim dividend paid before the date of death and later a final dividend for the company’s year. With thanks to Maureen Solomon who once explained this to my colleagues and me especially well over 15 years ago, my understanding is that you actually have to wait until the final dividend for the year/period is declared and you combine that with any interim dividend that was paid and then apportion the combined amount over the whole period to which the dividends related (ie from the day after the period applicable to the previous “final dividend”). This can cause delays, because you could have to wait almost a whole year until you know these figures, if the previous final dividend was declared only short time before the date of death.
This is one reason that trusts came to include express provisions that entitlement to “income” means “income as it arises” or that income is deemed to accrue on the date it becomes payable and not “from day to day” (or words to that effect). Most precedent books will have provisions to avoid apportionment, but you do need to check that the Will in question has these provisions. The first and second editions of the STEP provisions also exclude apportionment. As I say, the Trusts (Capital & Income) Act 2013 has now abolished s2 Apportionment Act 1870 for “new trusts” (defined in s1 T(C&I)A 2013).