You also still have to be very careful about chargeable events. The debt is a liability of the trust and is not charged on the investment bond, so one does not necessarily follow the other. If the beneficiaries accept liability for the debt at the same time as the bond is assigned to them it could be argued that they are giving consideration for the assignment of the bond, which would potentially give rise to a chargeable event gain.
I think one way round it is by a deed of appointment of the trust fund to the beneficiaries outright, but with no reference to the debt, followed by an assignment of the bond, then an appropriation of the debt from the estate to the beneficiaries and a release of the debt by them in favour of the trustees.
The problem arises from the fact that the Will should expressly deal with the debt, and this is usually recommended in the scheme literature, but it is often overlooked. It doesn’t matter if the trust arrangement can continue after the deceased’s death, with the debt being repaid gradually to the beneficiaries of the estate from the 5% withdrawals, but that isn’t always appropriate.
Diana Smart
Gordons LLP