Converting A&M to discretionary trust

[beckied]

Can a pre 22/3/06 A&M trust be converted into a discretionary trust without tax consequence and new beneficiaries added? The existing beneficiary gets interest in possession at 25 just before 6 April 08 so trust will enter relevant property regime then anyway as no wish to advance capital then.

[Anthony Nixon]

It depends entirely on the terms of the existing trust instrument.

One of the conditions for accumulation and maintenance trusts was that one or more of the beneficiaries had to become entitled to the property outright, or at least to an interest in possession in it, by the age of 25. This will be written into the existing trust instrument in some form and you cannot ignore it just because of the IHT changes.

Some A&M trusts, once a beneficiary's interest in possession has begun, specifically allow the trustees to make a further change to the trusts, including to discretionary trusts. If provisions such as these are in the trust instrument, then there is no problem.

If the trust does not include such flexible provisions the change you ask about will be more difficult.

Why do the trustees want to make the change? If they are satisfied that it is for the benefit of the beneficiaries, they may be able to put in place what is wanted thanks to other powers available to them, in particular the power of "advancement". But this is very much a specialist area.

It will not usually be possible for beneficiaries to be added (unless benefits to those new beneficiaries are in some way a benefit to existing beneficiaries) unless the trust instrument includes specific powers for this.

If there is significant value in this trust good specialist advice is essential. Both the trust rules and the associated tax rules are very complex.

Anthony Nixon
Solicitor, Chartered Tax Adviser and Trust and Estate Practitioner
Partner, Lester Aldridge Solicitors
Bournemouth

Tel: 01202 786118
Email: anthony.nixon@la-law.com
Website:www.lester-aldridge.com