A more recent version of these Worked Answer Discretionary Trust notes – written by Cambridge And Oxilp And College Of Law students – is available here.
The following is a more accessble plain text extract of the PDF sample above, taken from our Private Client Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
Discretionary Trusts - scenario Q's The sort of Questions you are likely to get in the exam...
Do T's have authority to give X PSxx,xxx?
Look to the trust instrument and respective clauses.. what are the Trustees powers?
Do they have authority to pay capital? State clause number and confirm Y/N.
Appointment of capital
?? ? ?An appointment of capital from a discretionary will trust within 2 years of death will normally be read back into the will under IHTA 1984,s144.
? Usually reading back would mean that the spouse exemption would apply to the PSxx,xxx appointed and so the tax paid on the PSxx,xxx would be refunded.
NOTE: Appointments can be made within 3 months and from 2 years of death so the appointment should not be made immediately or there will be no reading back. This is because reading back occurs only where the transfer would otherwise be chargeable to IHT. An appointment in the first 3 months is not chargeable. Advice is often 'to act swiftly' Sometimes you can get around this if time is pressing. Depending on the will the Trustees may be able to lend money from the trust under the Power to Lend provision (refer to clause/ schedule) and then releasing the debt so as to turn it into an appointment of capital when safe to do so. (c) [NAME] has also heard from Andrew's widow who has been approached by an American woman who claims she and Andrew had a relationship shortly before his death and she has had a child, Nick, as a result. Andrew's widow and Phillip have reasons to believe the story and wonder if the child could be maintained as a beneficiary of the trust. Advise [NAME] (12 mrks) (c) Although Nick is a grandchild of Julia (and within the class of beneficiaries in
5.3.2 as "remoter issue") he is illegitimate and is disqualified as a beneficiary under clause 5.4. The trustees could add him as a beneficiary as they have power to do this under clause 6. Query Julia's wishes on this issue. Why did she have clause 5.4 included? Is it appropriate to go against her wishes?
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