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Date Posted: 05:05:00 03/07/03 Fri
Author: agree3
Subject: agree3


Deed of gift to parents of annuity out of a life interest in a trust fund of personalty1
THIS DEED OF GIFT is made the …… day of ……… BETWEEN (1) AB (donor) of (address) (‘the Beneficiary’) and (2) CD and EF (trustees of the fund) of (address[es]) (‘the Trustees’)
WHEREAS
(1) Will and trust fund
Under the will dated the …… day of ……… (‘the Will’) which was proved in the [……… District Probate Registry or the Principal Registry of the Family Division] of (name of testator) late of (address) who died on (date of death) the Beneficiary is entitled during his life to the income of a fund created by [clause ……… of] the Will (‘the Trust Fund’)
(2) Trustees
The Trustees are the trustees of the Trust Fund
(3) Trust investments
The investments now comprising the Trust Fund are all vested in the joint names of
the Trustees and are set out in the Schedule below
(4) Proposed annuity
The Beneficiary wishes to make provision for his father (name) and his mother (name) (‘the Parents’) by the grant to them and to the survivor of them of the following annuity out of the income of the Trust Fund
NOW THIS DEED WITNESSES as follows:
1 Grant of annuity
1.1 The Beneficiary irrevocably directs the Trustees to pay during his life out of the income arising from the Trust Fund to the Parents or to the survivor of them the annual sum of £… (… pounds) (‘the Annuity’) commencing from the date of this deed and continuing during so long as both the Beneficiary and at least one of the Parents shall be alive
1.2 The Annuity shall be payable by equal consecutive [quarterly or half yearly] payments on (dates) in each year
1.3 The first such payment of the Annuity shall be made on (date) next
1.4 Subject to the payment of the Annuity the Trustees shall during the life of the Beneficiary pay the income of the Trust Fund to the Beneficiary in accordance with the trusts of the Will
2 Division of the Annuity between the Parents
The Parents shall be entitled to the Annuity during their joint lives in equal shares and after the death of the first of the Parents to die the survivor shall be entitled to the whole of the Annuity
3 Acknowledgment by Trustees
The Trustees acknowledge the directions given by the Beneficiary in this deed
[4 Certificate of exemption from stamp duty
(certificate of exemption from stamp duty if appropriate)]
IN WITNESS etc
SCHEDULE
(particulars of investments comprising the Trust Fund)
(signatures and seals of all parties)
[430]

1 No stamp duty if certified in accordance with the Stamp Duty (Exempt Instruments) Regulations 1987/516. See Information Binder: Stamp Duties [1] (Voluntary disposition). For a form of certificate see Information Binder: Stamp Duties [1] (Certificates). A deed in this form will normally be a transfer of value for the purposes of inheritance tax (Inheritance Tax Act 1984 s 3 (42-44 Halsbury’s Statutes (4th Edn) TAXATION)), unless it is excluded as a disposition in favour of a dependent relative under ibid s 11(3). For the limited definition of ‘dependent relative’ for this purpose see ibid s 11(6). However, the grant of the annuity will be a potentially exempt transfer under ibid s 3A as inserted by the Finance Act 1986 s 101(3), Sch 19 para 1 and amended by the Finance (No 2) Act 1987 s 104(4), Sch 9 Pt III.
It has been the view of the Commissioners of Inland Revenue that the Inheritance Tax Act 1984 s 142 (alteration of dispositions taking effect on death) will not apply unless the instrument recites a desire to vary the dispositions in the will and the operative part of the instrument effects the intention to vary. For appropriate wording to express and effect such desire and intention see Form 30 [432] post. In addition, before ibid s 142 can apply an election in writing is necessary and must be made within 6 months of the date of the deed (or such longer time as may be allowed by the Commissioners) by the donor and, if the variation results in additional tax being payable, also by the personal representatives: see ibid s 142(2). For a form of election see Form 30 clause 2 [432] post. The election should be embodied in the deed.
This deed will also create a settlement for inheritance tax purposes (Inheritance Tax Act 1984 s 43(2)(c), under which the parents are entitled to an interest in possession and are treated for inheritance tax purposes as beneficially entitled to that part of the capital which produced the income: see ibid ss 49, 50. No liability to inheritance tax will normally arise on the death of the first of the parents to die as the transfer which is deemed then to occur will usually be an exempt transfer between spouses by virtue of ibid s 18(1) (but note ibid s 18(2)). If the surviving parent dies during the life of the donor, and the interest then reverts to the donor, or if the donor’s spouse (or widow or widower if the donor has died less than 2 years before the surviving annuitant) becomes beneficially entitled and is then domiciled in the United Kingdom, the value of the interest will normally be left out of account in determining the value of the deceased’s estate: see ibid s 54(1), (2). For provisions to deal with the case where no qualifying interest in possession subsists see ibid s 54A as inserted by the Finance (No 2) Act 1987 s 96(6), Sch 7 para 1.
The trust fund being already in the hands of the trustees, the donor does everything in his power to give effect to the gift of the annuity if he directs the trustees to pay it, and the gift is valid on the direction being accepted by the trustees; see Rycroft v Christy (1840) 3 Beav 238.
As to income tax see Paragraph 16 [333] ante.

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