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Sub trusts under a will?

Can Will trusts be treated as subtrusts for TCGA Sch 4ZA, or is this not even necessary?

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Mr A dies, leaving a very flexible will. His executors use that flexibilty to establish a number of trusts for various family members. Are these trusts treated for CGT[not IHT] as a single trust, and if so can they be segregated for CGT purposes by an election under TCGA Sch 4ZA?

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By Tax Dragon
09th Sep 2019 12:40

The deceased must have left the assets on trust. At that point, from what you are saying (and in contrast to the situation we were discussing in the "Annual exemption for trusts" thread), presumably one trust.

Whether the appointments made by the trustees (you say executors, but mustn't it be in exercise of the powers given to the trustees, and in effect acting as such?) create separate trusts, or sub-funds within the one trust… well, it could be either, and you haven't put us in a position to comment.

If it's sub-funds, I don't see what your doubt is about the availability of the election. Do please enlighten me.

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Replying to Tax Dragon:
By Montrose
10th Sep 2019 15:51

As you say, the executors were acting as trustees of a discretionary trust under the terms of the will.
There is an oddity under TCGA s62(6), since given that none of the beneficiaries was a party to the actions taken by the executor/trustees, no claim under s62(6) appears to be possible.
That being the case it seems advisable for an election under Sch 4ZA to be executed, even though there are no assets held under the discretionary trust established under the will.

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Replying to Montrose:
By Tax Dragon
10th Sep 2019 17:30

The oddity is not in s62(6). In the normal course of events, assets would pass into the trust, the trustees would be treated as having held the assets since death and appointing those assets to sub-funds would not be a disposal by the trustees and would not require an application of s62(6). Since a sub-fund election triggers a deemed disposal, it would, instead, be odd if s62(6) could override that.

However, what you (or the executors) are trying to do is to use the (future trustees') power of appointment in advance of properly constituting the trust and transferring the assets to it. I am aware that, in certain situations, powers can be exercised in such a manner. To make the appointment valid (assuming that it is), it must (surely?) specify the assets appointed. It seems to me that those assets must therefore pass (either in the making of the appointment or in advance, in preparing to make the appointment) to the (main) trust – and thus to the sub-fund.

I would want legal advice to make sure that the proposed appointments can be validly made – and I would want (legal) clarity on the points in my preceding paragraph. If only this forum had a resident legal genius who could step in and help us at times like this. Failing that, if you have obtained legal advice about the validity of these actions, I’d be interested to see the logic if you could share it – and whether it confirms that, as you say, the main trust remains empty or whether, as I suspect, the assets pass (in law) to or through it.

Tax almost certainly follows trust law here.

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