IHT, Discretionary Trust, Deed of Variation

[Matthew]

My step-father's Will (he died March 2021) has left money to his children and step-children.

I had intended, once my share was in my bank account, to make gifts (before the March 2023 deadline) to others via Deeds of Variation.

The money from my step-father's Will is at present in a Discretionary Trust. I have just been told that the Discretionary Trust is
(a) to be wound up "via a Deed of Variation"
(b) by Summer 2022.

Does that mean that, if I get my share from the Discretionary Trust by a Deed of Variation, I cannot then pass it on by a Deed of Variation? (I ask because I have read that the recipients of a Deed-of-Variation Gift cannot then pass it on by a further Deed of Variation for that would not be as if the person writing the Will had made the Gift.)

I am aware that I can instruct the distribution from the Discretionary Trust to go direct to those I might wish to benefit, but I am---for reasons of no relevance here---not ready to make such a decision for some time, perhaps not till January 2023, and so do not wish to be forced to do so earlier if it can be avoided.

(1) What is the legal position?
(2) If I receive money from the Discretionary Trust via a Deed of Variation, am I still able to make use of Deeds of Variation to pass money on to others (so that the Gift remains tax-free)?
(3) Can the money to be paid to me from the Discretionary Trust come to me other than via a Deed of Variation?

[maths]

Normally when a DT is effectively no longer wanted/needed the trustees would (via deed(s) of appointment) appoint out the various trust assets amongst one or more beneficiaries under the trust (assuming the trust deed contains the relevant powers) ie not using a Deed of Variation.

Under IHTA 1984 s144 the receipts by the beneficiaries are treated for IHT as if the deceased had left the receipts to the beneficiaries (the DT effectively being
ignored). On receipt you could then execute a DoV in favour of whom you wish to benefit. There may be CGT consequences on the appointments under s144.

Both the appointments out of the DT and the DoV need to be executed within two years of death.

As you understand, the same property in an estate cannot be subject to two successive DoVs.

This is not really an area for DIY

[Matthew]

Thank you for the clarification. Regarding DIY, I agree, but from the family members dealing with the legal side I have received the following: 'I have just heard back from XXX. His accountancy firm YYY's tax specialist says "You will definitely need a deed of variation and then once that's done, as long as the trust is wound up within the 2 years, then nothing needs to be done re. HMRC"'. As I already knew about the double-DoY prohibition, I felt this could not be right, so posted the enquiry on this site. I fear the accountancy firm may be practising DIY beyond their sphere of knowledge.

If there's a specific passage in a legal document that clarifies the distinction between a Deed of Variation and a Deed of Appointment, a link to it might be useful. But in any case, thank you again.

[maths]

It's difficult to comment on thirds party advice/comments without seeing all documentation.

This article under the subheading "Legal fundamentals" may help:


https://www.cii.co.uk/learning-index/articles/bringing-a-trust-to-an-end/56817