Commentary

I5.721A Reversionary interests comprised in settlements—example

IHT, trusts and estates

I5.721A Reversionary interests comprised in settlements—example

I5.721A Reversionary interests comprised in settlements—example

A makes a lifetime settlement ('the A settlement') under which the settled funds are directed to be held on trust for B for life with remainder to C absolutely.

C then makes a settlement ('the C settlement'), of his reversionary interest under the A settlement. C's reversionary interest is excluded property and the making of the C settlement does not give rise to a transfer of value.

The trusts of the C settlement are as follows. A one-half undivided share of the interest is held on trust for M for life with remainder to N. The other half share is held on conventional discretionary trusts.

Assuming A's settlement is made before 22 March 2006

If A's settlement is made after 26 March 1974 and before 22 March 2006 and B subsequently dies before 22 March 2006 the position is as detailed below.

While B is living:

  1.  

    (a)     The termination of M's interest in possession under the C settlement would not be a transfer of value, whether it occurred during M's lifetime or on M's death, because the settled property remains excluded property1 (see I5.258)

  1.  

    (b)     There will be no periodic charges or exit charges on the share of the C settlement trust fund which is subject to discretionary trusts2 (see I5.303)

When B dies there will be an IHT charge on the assets of the A settlement as part of B's estate (see I5.241). What is left of those assets after paying the tax will become directly subject

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