The following Trusts and Inheritance Tax guidance note by Tolley in association with Peter Gausden, Consultant Solicitor at Rowlinsons provides comprehensive and up to date tax information covering:
A so-called ‘precatory trust’ is when a testator makes an outright gift of property to a legatee, but also includes in the will an unenforceable direction to the legatee to further dispose of the property in favour of others. Often the direction is expressed as a ‘wish’, ‘hope’, or ‘desire’. Since no imperative fiduciary duty falls on the legatee, as with a normal trust, the legatee is free to ignore what the testator has said and is at best under only a moral obligation to dispose of the property in accordance with the testator’s direction.
If the legatee chooses to respect the testator’s direction and transfers the property, issues can arise as to whether there is a transfer of value for inheritance tax or a disposal for capital gains tax purposes.
The only direct statutory guidance relates to inheritance tax.
Since the gift initially takes effect as an absolute one, inheritance tax rules apply in the usual way. If the gift is to the testator’s spouse or civil partner, it will be exempt; otherwise it may be chargeable depending on the rest of the estate. Section 143 provides that if the named beneficiary transfers the property in compliance with the testator’s expressed wishes within two years of the testator’s death then ‘[the 1984 Act] shall have effect as if the property had been bequeathed by the will to the transferee’.
Also, a transfer to which section 143 applies is not a transfer of value.
It follows that if the named legatee chooses to give effect to the testator’s precatory direction within the two year t
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