I am dealing with a discretionary trust which says that the settlor is “Mr J M” and the beneficiary is ‘Mr I H’. (and his family members)
However, when I was speaking to Mr I H he said ‘I contributed all the capital of the trust’ - I gave it to Mr J M.
Should I therefore treat Mr I M as the ‘real settlor’ in this case and it is therefore a settlor interest trust.
If X passes property to Y on the understanding Y will settle the property transferred then in the absence of other factors X will be the sole settlor having provided the property albeit indirectly.
Y is not a settlor.
Your post seems ambiguous and contradictory.
Is it the case that Mr IH wished to set up a trust and therefore provided the trust property albeit indirectly (for some reason) via Mr JM? This would not seem inconsistent with Mr IH and family members being the intended beneficiaries. In which case Mr IH is the sole settlor and the settlement would be settlor interested. The statement “that Mr JM is the settlor” would then be incorrect.
Malcolm Finney
I must say, I can only assume that Mr IH wishes to hide behind Mr JM so Mr IH’s minor children can receive income from the trust (and reclaim the 45% tax credit) without it being assessed on Mr IH as settlor of a settlor interested trust. I may be attributing motive where there is none but I can’t see why else anyone would do this.
Sara
This is a good question. As Mr Finney correctly notes, if X passes property to Y on the understanding Y will settle that property, X can properly be regarded as the sole settlor (see Hatton v IRC 67 TC 759).
It is however worth noting that, in Hatton, it was a ‘virtual certainty’ that Y would settle the property on trust; and moreover, Y did so within 24 hours of receiving the property. Clearly, there must be some sort of relationship between (i) the gift from X to Y, and (ii) the gift from Y to trust, in order for X to be the settlor. It is an open question of law as to exactly what form that relationship must take. (If X gifts property to Y and Y, acting on her own initiative, settles that property on trust 10 years later, for example, X would not be regarded as the settlor).
See Kessler KC’s Taxation of Foreign Domiciliaries 2023/24 at [98.7], which provides a good discussion on this point.
As it would appear that Mr I H is the economic settlor, with Mr J M merely being the notional settlor for the purposes of the settlement, then Yes
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals