We have a case where the deceased left a Will with residue on standard discretionary Trust.
The Trustees have exercised their power of appointment under the Trust within two years of death to appoint the assets to be held upon life interest for the surviving spouse and then to the son as the remainderman.
We are in the process of registering the Trust with the HMRC TRS, but are unsure who to name as the Settlor and whether the commencement date should be the date of death or the date of the subsequent Deed of Appointment.
The TRS guidance refers specifically to Deeds of Variation and states that if a Trust is created by variation, then the variation itself will be the Trust instrument and the person who effected the variation will be the Settlor. We are unclear whether this would also extend to the current scenario with a discretionary will trust, or whether it is different because the deceased’s Will originally created the Trust and it is simply an appointment out of that existing Trust.
Any thoughts and guidance would be greatly appreciated!
A variation which creates a trust is a new trust for TRS and has to be registered as well as the one it varies. It may even entail the notifiable “closure” of the original.
A discretionary trust envisages that appointments of income and capital will be made in future. The kind of appointment you describe is just a typical example of the operation of the original trusts and need not be registered separately. There is no change in the identity of the settlor or beneficiaries needing to be disclosed in the original registration and often there will not be a change in the trustees (though any such change would itself have to be reported by way of updating the original).
A DT often allows the trustees to create an entirely new trust and transfer all or part of the trust fund to the new trustees, who confusingly may even be themselves! This has caused contentious issues especially for CGT. This is unlikely to involve a change of settlor, it may or may not involve a change of trustees or beneficiaries. For CGT reasons the creation of the new trust will dry often be structured as a sub-trust of the original and if so probably only changes of trustees or beneficiaries in relation to the original trust will need reporting.
The CGT concept of trustees creating a separate settlement, or not, is not covered at all in HMRC guidance, largely because those who framed the TRS were self-evidently ignorant of most of the technicalities of trust law or couldn’t care less. It is AML law, which is draconian and as subtle as, so say the Aussies, a dead crow in a bucket of milk.
The reasonable presumption with a DT is that once it is registered it will only need its details updated for changes and eventually when it is “closed” (all monies and assets fully distributed).
Following up on Jack’s latest post, even if the appointment is onto new trusts, I believe s.81 IHTA 1984 will apply even for TRS purposes, so that the testator remains the “settlor”.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I have to disagree with Paul. Yes s81 will apply for IHT but TRS legislation is AML not tax or even trust law. Ordinary principles of statutory and subordinate legislation apply and this surely cannot extend to s81 which for IHT purposes alone expatiates on the peculiar IHT definition of a settlement and:
1 deems a situation to occur that would otherwise almost certainly not be the position in trust law
2 may well be contrary to the CGT position ( what is and is not “settled property”) which cannot strictly apply but may do so only because the separate settlement cases are based on a trust law analysis which might also be valid for TRS because the meaning of “trust” therein might be accorded a technical meaning. On which point the TRS SI is silent.