Vested v contingent interest

Trusts Discussion
#1

I would be grateful for your thoughts on whether the following Will wording creates a vested or contingent interest for daughter K:

“My Executors shall hold the residue as to one half in trust for my daughter K until she attains the age of 21 years and as to one half absolutely for my daughter D”.

There is no gift over in the event that the gift to either daughter fails and no direction as to what interest K has until attaining the age of 21. The Will includes the STEP Standard Provisions First Edition.

Father died when K was 14 and she is now 18. We need to deal with K’s half share of some rental income and the question of whether the gift is vested or contingent will determine the tax treatment. I was working on the basis that the gift is contingent so that this would be an 18 to 25 trust with income tax chargeable to the trust at the trust rate and, if income is paid out of the trust to K (which it hasn’t been so far), she would be able to claim some or all of it back on the basis that she does not pay tax/pays tax at a lower rate. However, the more I have looked at it (and I have looked everywhere I can think of, including Williams on Wills and previous discussions on this site), I am thinking that it is actually a vested gift such that the income tax should be chargeable to K.

Many thanks for any guidance you can provide.

Lisa Homer
Pickering & Butters LLP

#2

The absence of a gift over suggests that the gift is contingent on attaining age 18. Were an explicit gift over to have been made indicating the situation had the beneficiary failed to attain age 18 under Phipps v Ackers vesting would have occurred immediately.

I do not believe the gift is a deferred gift to some future date as this requires that the beneficiary will in due course take the gift.

I think the above may perhaps be oversimplifying matters!

Malcolm Finney

#3

The wording to my mind represents an ineffective attempt to extend s.31 Trustee Act 1925 in respect of K’s entitlement until she attains age 21. I would therefore suggest that it is vested and the trustees will need to account to her for her interest in full once she attain(s/ed) her 18th birthday.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

#4

The half in trust for K is in trust “until” she reaches 21-not “when” or contingent upon attaining. Therefore, it suggests that she is entitled to the income until she is 21, and after that there may be a partial intestacy (or further gift over), in the absence of any further clarification of the wording which can be construed from the rest of the Will.

If so, K will be entitled to income at 18, subject to the remaining provisions of the Will, until she is 21.