Variation of Life interest trust

We are dealing with a probate where the will leaves a share of residue on life interest trust to X with residue to Y. The trustees have discretion to pay all or any part of the trust capital to X.

The trust has not been constituted yet and all parties (including Y) agree that X should receive all the trust capital.

They would prefer this to be done by way of a s.142 variation so that, for IHT and CGT purposes, it is as though there was an outright residuary disposition to X.

My initial research indicated that it is not possible to vary a distribution if an IPDI arises between the date of death and the distribution. Is anyone aware of a way around this, for example by making a variation before the trust is constituted?

There is no prohibition on using a s.142 variation to eliminate a life interest. It is only if the life tenant has died that HMRC take the view that it is no longer possible to write out the life interest (although a number of practitioners disagree with HMRC’s view).

Provided that Y’s interest in remainder is vested, there is no reason that they should not be able to enter into a s.142 variation gifting their entitlement to X with the intention that X’s interest is enlarged to an absolute interest.

It would be possible for Y to make the variation even after the trust had been constituted.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals