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Rounding off my series on intestacy with a look at trusts holding assets for spouses and children.
Minor characters
Over the past few weeks, I have been looking at the wonderful world of intestacy. Well, actually it’s not that wonderful is it? First, if you are intestate you are, by definition, dead. And second, if you are one of the people who was close to the intestate, then, apart from the loss of someone you love (or at least liked or got along with…or knew…or tolerated…or not), you may also have to deal with not getting (financially that is) what you might have expected or would have liked to have got.
And, if they were aware of this (your financial disappointment that is) then the intestate may not have been that happy either.
Like it or not, though, there have been, and will continue to be, many who have let this unhappy state of affairs exist. And all it would have taken to avoid it is for someone (their financial or other professional adviser most obviously) to have vividly painted the picture of the financial reality resulting from intestacy.
As I have explained to, or, more likely, reminded, you over the past few weeks, who gets what following intestacy depends substantially on who survives the intestate and the assets that the intestate owned on death.
You may also recall (if you were paying attention that is) that where property passes on intestacy to the issue of the deceased it is held upon the statutory trusts.
The term is defined in section 47(1) Administration of Estates Act 1925 as amended by section 3(2) of the Family Law Reform Act 1969. Where all or part of the estate is held upon the statutory trusts for issue of the intestate, such whole or part is divided in equal shares between such of the children of the deceased as survive him and reach the age of 18 or marry under that age.
If a child dies before the intestate, leaving children living at the intestate’s death, they take in equal shares between them the share which their parent would have taken had he survived again, subject to their reaching the age of 18 or marrying under that age. This method of distribution is described as being “per stirpes” according to the stocks.
Until the Law Reform (Succession) Act 1995 came into force, the hotchpotch rules applied, which meant that certain gifts which the beneficiaries of an intestate received during lifetime had to be brought into hotchpotch (that is, account) as an advancement, the value to be reckoned as at the date of death of the intestate.
Section 1(2) of the 1995 Act abolished the hotchpotch rules on full intestacy only in respect of the statutory trusts for children of the deceased (but not in respect of other classes of relative benefiting, for example, where no spouse/civil partner and issue survive. I considered the abolition of hotchpotch for children and spouses/civil partners on partial intestacy in last week’s article).
Where the children benefiting under intestacy are under age 18 a statutory trust, called a bereaved minor’s trust, comes into effect on the death of the parent for each such child
Where the children benefiting under intestacy are under age 18, a statutory trust, called a bereaved minor’s trust (BMT), comes into effect on the death of the parent for each such child. Under the trust, the child will become absolutely entitled at age 18. For inheritance tax purposes, the trust is exempt from the periodic and exit charges which would otherwise apply under the IHT-relevant property regime. Before the Finance Act 2006 (which introduced the BMT with effect from March 22, 2006), the funds would have been held on the statutory accumulation and maintenance trusts. With regard to income and capital rights under such a BMT, sections 31 and section 32 of the Trustee Act 1925 will apply.
These deal with the use of trust income and the potential to advance trust capital respectively.
When the beneficiary attains age 18 (or on previous marriage), he or she can demand payment of the capital.
Where a spouse/civil partner and children benefit under intestacy, one-half of the residuary estate will be held on another statutory trust under which the life interest vests in the widow(er)/partner with the children benefiting in remainder. For IHT purposes, the spouse’s interest will be an immediate post-death interest and the spouse exemption will apply, subject to the usual conditions.
When statutory trusts apply on intestacy, it will be the administrators who will be the trustees of the trust, although they will have a power to appoint other trustees if necessary or desired.
In all other areas of trust administration, the statutory rules will apply, in particular the Trustee Act 2000 in respect of any investments of the trust fund. The provisions in the Trustee Act 2000 have substantially opened up (from their previously relatively confined state) the range of potential investments that can be made.
Broadly speaking, and subject to certain important checks and balances, the trustees can invest in whatever they feel is appropriate for the trust.
Tony Wickenden
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