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Where Taxpayers and Advisers Meet

Remainderman interest to be held on trust

tax_schmax
Posts:392
Joined:Wed Aug 06, 2008 3:53 pm
Remainderman interest to be held on trust

Postby tax_schmax » Fri Sep 25, 2015 11:37 am

Hi

I'm working on a case where the father of our client created a Life Interest trust upon death via his will. Our client is the remainderman and the life tenant was his stepmother. The life tenant has now died. The will states the trust assets should continue to be held on trust for the remainderman after the death of the life tenant. The question I have is that the trustees would like to add other beneficiaries (the remaindermans children) to the resulting trust. Is this possible? Is the resulting trust relevant property and is this outside of the estate of the remainderman as long as it remains in the trust?

I'd be keen to study this area some more if anyone can point me toward any scholarly articles, that would be ideal.

LozaACCS
Posts:1504
Joined:Wed Aug 06, 2008 3:55 pm

Re: Remainderman interest to be held on trust

Postby LozaACCS » Sat Sep 26, 2015 2:39 pm

The step mother had a qualifying IIP whether the trust was established before or after 22/03/2006, because her interest is an IPDI (S49A IHTA 1984).
So the trust property is settled property and charged in her death estate (S49/49A IHTA 1984), there would also be a tax free uplift on death for CGT purposes.
The remainder man,s interest is excluded property.
On the death of the life tenant the trust property migrates to the relevant property regime, this in itself is not a chargeable occasion for IHT since no assets leave the trust, whilst the property remains in the trust it is outside the estate of the beneficiaries.
Whether or not an IIP existed in the trust after the life tenants death would make no difference since it would fail to be a qualifying IIP (S49A para 3 condition 2).
Assuming any subsequent IIP was a qualifying IIP then the mere existence of a power of revocation or appointment would not negate the IIP unless the power were exercised.

From a learning perspective I did IHT as an advisory paper for CTA and found the study manuals of Tolley and Kaplan very good, supplemented by the HMRC manuals and general internet searches, (alternatively ask Maths)
I do find IHT pretty deep and it is difficult to retain the knowledge as a general practitioner when there are so many other things to keep up to date with.
Hope this is of assistance

tax_schmax
Posts:392
Joined:Wed Aug 06, 2008 3:53 pm

Re: Remainderman interest to be held on trust

Postby tax_schmax » Tue Sep 29, 2015 11:34 am

Thanks for this. Great reply.

I'm just finishing a big renovation so I need another huge project for weekends.


Ian

Lee Young
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Joined:Wed Aug 06, 2008 3:26 pm
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Re: Remainderman interest to be held on trust

Postby Lee Young » Tue Sep 29, 2015 5:24 pm

Surprisingly I'm not entirely sure I agree with Loza's interpretation, but as ever stand to be corrected in the right direction!

Why the view that the trust is now, following the death of the life tenant, within the relevant property regime? If the remainderman is the only beneficiary, or is one of many absolute beneficiaries then the trust has come to an end. Only if the trust is directed to be held for many beneficiaries at the discretion of the trustees, or perhaps the remainderman is in fact a successive life interest, would the trust then enter the relevant property regime. This inevitably stands on the actual wording used in the will. Which therefore begs the question....what is the actual wording?
Lee Young
Solicitor, Chartered Tax Adviser and Trust and Estate Practitioner


Partner, Frettens LLP
lyoung@frettens.co.uk
01202 491701

LozaACCS
Posts:1504
Joined:Wed Aug 06, 2008 3:55 pm

Re: Remainderman interest to be held on trust

Postby LozaACCS » Tue Sep 29, 2015 8:14 pm

Lee
I am not a lawyer and would defer to your greater knowledge of the legal position, that said my interpretation was that a successive life interest was clearly in point since the original will establishing the trust stated that the remainder man,s interest was to be held on life interest for that beneficiary, this would not (I think we agree) be a qualifying IIP and as a consequence cause the trust to migrate to the RP regime.
It does beg the question (as you point out) what the terms of the trust were,
If the grant of the life interest were say in a letter of wishes or given as a power to be exercised at the discretion of the trustees, then if the power were not exercised then the trust would end and the absolute interest of the remainder man would fall in.
If however the IIP was an express provision of the trust then that in my opinion would negate the absolute interest of the remainder man and the trust would indeed continue and from that point be within the RP regime

Lee Young
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Joined:Wed Aug 06, 2008 3:26 pm
Contact:

Re: Remainderman interest to be held on trust

Postby Lee Young » Wed Sep 30, 2015 5:17 pm

I agree - it hinges on the wording and whether or not there is a successive life interest.
Lee Young
Solicitor, Chartered Tax Adviser and Trust and Estate Practitioner


Partner, Frettens LLP
lyoung@frettens.co.uk
01202 491701

tax_schmax
Posts:392
Joined:Wed Aug 06, 2008 3:53 pm

Re: Remainderman interest to be held on trust

Postby tax_schmax » Mon Oct 19, 2015 11:28 am

Hi Both

Fro absolute clarity, the will states that the assets should be held on trust for Mrs thus; "UPON TRUST for my said wife for her life and after her death UPON TRUST for my son xxxxxxxxx absolutely PROVIDED THAT if he shall die in my lifetime leaving a child or children living at my death such child or children shall take and if more than one in equal shares the share that would have been taken by his her or their deceased parent had he survived me and attained a vested interest under this my will.

I'm not sure if there is an option to keep the trust open as my understanding of absolute, means no change of beneficiary and that the funds now are technically in the estate of the beneficiary should his estate be assessed in the event of his death.

Lee Young
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Joined:Wed Aug 06, 2008 3:26 pm
Contact:

Re: Remainderman interest to be held on trust

Postby Lee Young » Mon Oct 19, 2015 12:12 pm

Based on this wording the trust came to an end on the death of the life tenant and the remainderman (the son) now has an absolute interest,. Absolute means free from the terms of the trust. The assets within the trust are his and he can compel the trustees to transfer them to him.
Lee Young
Solicitor, Chartered Tax Adviser and Trust and Estate Practitioner


Partner, Frettens LLP
lyoung@frettens.co.uk
01202 491701


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