It is 4 March 2017. You are a trainee with Barlow Critchley of Broom House, 12 Mullins Way, Chester, Cheshire CH2 4GM. Your supervising solicitor is Helen Bruce.
Last Wednesday, Helen interviewed Dr Aarif Kabir, who wants to create a discretionary settlement for his children and grandchildren. Details of Aarif’s family, assets and proposals for the discretionary settlement are set out in Document A. Helen has drafted a settlement, extracts from which are attached (Document B).
Helen wants you to explain the following points to Clare Brown, a new trainee who has just started her seat in the Private Client department. Clare has copies of the attached documents.
(a) Calculate the IHT payable on the creation of the discretionary settlement. Assume that the trustees will pay any IHT.
(b) Explain the CGT position and the availability of any exemptions and reliefs on the creation of the discretionary settlement. You should calculate any CGT payable ignoring incidental costs of acquisition and disposal.
(c) Explain the tax consequences if settlements are “settlor-interested”.
(d) Explain what provisions in the discretionary settlement (Document B) ensure that it is not “settlor-interested”.
Assume that Aarif executed the settlement on 15 March 2017. It is now the 4 August 2019 and you are told that Aarif died, unexpectedly, of a heart attack on 30 July 2019.
Dani Kabir, the surviving trustee of Aarif’s settlement, has asked you to send him a letter explaining the following points.
x Will Aarif’s death give rise to IHT on the settlement and, if so, how much, who will have to pay it and when? (There is no provision in Aarif’s will dealing with the burden of IHT.) Assume that the rates of IHT are the same as for the tax year 2016-17.
x In June 2019, Aarif’s daughter, Fara, formed a civil partnership with Samantha. They have adopted a three year old child called Liam.
Dani wants to know whether Samantha and Liam are beneficiaries under the settlement and if not, whether anything can be done to include them. Dani has a copy of the trust deed to which you can refer.
Write a letter to Dani Kabir explaining the above points