[*1654]
C3 Wills for married couples with adult children
Preliminary note [225.1]
FORMS
C3.l Reciprocal wills giving nil-rate band legacy to children and
residue to spouse with default gift to children in equal/unequal
shares.
[225.9]
C3.2 Reciprocal wills with nil-rate band legacy on trust for the
children, residue on trust for spouse for life and then on trust for
the children, son taking a life interest and daughter a protected life
interest
[225.23]
C3.3 Will dividing residue between spouse and issue
[225.42]
C3.4 Reciprocal wills containing nil-rate band legacy on discretionary
trusts with gift of residue to spouse
[225.57]
C3.5 Will giving nil-rate band legacy on discretionary trusts and
settling residue on protective trusts for spouse for life, with
overriding trustees' powers over capital
[225.68]
TWO-YEAR DISCRETIONARY TRUSTS (INHERITANCE TAX ACT 1984, S144)
[225.83]
FORM C3.6 Will providing two-year discretionary trust
[225.92]
PRELIMINARY NOTE
[225.1]
General strategy and inheritance tax.
This section contains a selection of forms for use by married couples
with adult children. Accordingly, trusts for their children are mostly
in favour of named children, and are not contingent on attaining a
specified age. Since married couples with adult children are likely to
be middle-aged or elderly, some provision for tax-planning is
included, principally by means of a nil-rate band legacy either direct
to the children, as in Forms C3.1 and C3.2, or on discretionary trusts
under which the spouse is a beneficiary, as in Forms C3.4 and C3.5.
For further discussion of nil-rate band discretionary trusts see the
Note in B18 at paras [218.!6]-[218.24]. For further forms see Form B
10.51 at para [210.72] and Form B 18.2 at para [218.32].
[225.2]
Form C3.3 divides residue equally between spouse and issue, and
provides an element of generation-skipping by settling the son's share
directly on his children, while Form C3.6 subjects residue to a two-
year discretionary trust in effect leaving it to the trustees to
reconcile the competing objectives of making provision for the spouse
and minimising the liability of the joint estate to inheritance tax.
This type of disposition relies on the Inheritance Tax Act 1984 (ITA
1984), s 144, and a Note on s 144 precedes Form C3.6 (see para
[225.83] et seq).
[*1655]
[225.3]
The forms in C3 will not usually be appropriate where the estates of a
married couple are small, ie together amounting to less than the
inheritance tax threshold, or exceeding it by not very much. Also, a
nil-rate band discretionary trust will probably not achieve its
objectives if the property subject to it is the matrimonial home,
lived in by the surviving spouse, as that would probably confer an
interest in possession on him or her: see the Note on nil-rate band
discretionary trusts in B18 at paras [218.16]-[218.24J and for the tax
implications of rights of residence see the Preliminary Note to B8 at
para [20830]. A possible solution to the problem may be to set up a
debt or charge scheme, see Form C3.4 at para [225.57] et seq. See C2,
especially Form C2.l (at para [224.20] et seq) for forms more
appropriate to families with more modest resources, or resources
comprising little more than the matrimonial home, for whom the
relatively elaborate provisions of C3 are not appropriate. Special
considerations arise when the estate includes business or agricultural
property. These are discussed in the Preliminary Notes to Cil and C12
at paras [233.1] et seq and [234.1] et seq.
[225.4]
Survivor****p conditions. See the Preliminary Note to C2 at paras
[224.2]-[224.6] for a discussion of survivor****p conditions (they are
also discussed in B19 at paras [219.1]-[219.13]). Where, in the event
of the testator being survived by his or her spouse, a will makes a
nil-rate band non-exempt gift and leaves the remainder of the
testator's estate to the spouse, there is no inheritance tax advantage
in making the gift to the spouse subject to a survivor****p condition,
and it could be an inheritance tax disadvantage to do so if the
surviving spouse's separate estate was worth less than the inheritance
tax nil-rate band (see para [224.3], sub-para (iii)). Accordingly
survivor****p conditions are not included in inter-spouse gifts in C3.
Survivor****p conditions in gifts to persons other than the testator's
spouse are discussed in the Preliminary Note to C2 at para [224.6].
They are not included in the forms in C3.
[225.5]
Guardians.
It is assumed for the purposes of the fi5rms in C3 that the testators'
children have grown up, and no appointment of guardians is included in
any of them.
[225.6]
Reciprocal and mutual wills.
The Preliminary Note to C2 on this topic (at para [224.81) applies
also to C3.
[225.7]
Reciprocal wills and the ultimate destination of property. See the
Preliminary Note to C2 at paras [224.9]-[224.11]. Where a husband and
wife will not have any more children, it is possible to ensure that
the alternative gift or remainder trust to or for the children is in
favour of the same persons, in the wills of both spouses, by naming
the children. Most of the forms in C3 provide for this to be done, and
where they do not there are optional words confining the gift or trust
to the children of the marriage.
[*1656]
Part C Complete wills
[225.8]
The possibility of divorce.
The Preliminary Note to C2 on this topic (at paras [224.12]-[224.19])
applies also to C3.
[225.9]
Form C3.1: Reciprocal wills giving nil-rate band legacy to children
and residue to spouse with default gift to children in equal/unequal
shares
NOTE
A will in this form ensures that on the death of the first spouse to
die full use is made of his or her nil-rate band (or any unused part
of it) by giving a legacy of the appropriate amount direct to the
children. It will not be suitable where the surviving spouse might
need access to the whole estate. In such a case a discretionary legacy
of the nil-rate band of which the surviving spouse is a beneficiary,
as in Form C3.4 at para [225.57] et seq may be preferable.
[225.10]
Revocation clause1
I [name] of [address] hereby revoke all former testamentary
dispositions made by me and declare this to be my last will. 1 There
is no presumption that wills in similar form are mutual wills in the
technical sense, but the matter can be put beyond doubt by
incor****ating an express provision to that effect: see Form 111.6 at
pars 1201.101 and the revocation clause to Form C2.t at pars [224.21]
and the note thereto.
[225.11]
Appointment of executors and trustees
1. I appoint my [wife/husband] [name] ('my [wife/husband]') [name] of
[address] and [name] of [address]' (hereinafter together called 'my
trustees' which expression shall include my personal representatives
for the time being and the trustees for the time being hereof) to be
the executors and trustees of this will.
1 If there are two executors as well as the wife/husband, there will
still be two effective appointments if there is a divorce and the
appointment of the wife/husband is nullified by the wills Act 1837, a
18A (Part G, pars [243.18]). See also the Preliminary Note to C2 at
paras [224.12]-[224.19].
[225.12]
Pecuniary legacies
2. [If I survive my [wife/husband]]1 I give the following pecuniary
legacies free of tax: 2 (a) to [name] the sum of =A3-; (b) to [name] the
sum of =A3-; (c) to [name] the sum of =A3___.
[*1657] I The words in square brackets should he included where these
are intended to be legacies which are given once only, on the death of
the second of the spouses to die. It should be noted that where the
words in square brackets are not included, and the nil-rate band
utilising legacy below is expressed as a specified sum of money, the
latter needs to be reduced by the total amount or value of the
legacies given by this clause which are not exempt legacies such as
ones to the surviving spouse or to charity. For reciprocal wills
containing legacies intended to take effect under only one of the
wills where there it a survivor/hip condition in the main gift see
Form C9.2 at para [231.14] et seq.
It should be noted that if there is a divorce, these legacies will
still take effect, and only lake effect, on the death of the survivor
of the former spouses, if they do not change their wills. 2 See Form
C2. 1, cl 6, n 3 at para [224.27] and n 1 to cl 5 of this form at pars
[225.15]. These pecuniary legacies are declared to be 'free of tax' to
take account of the risk that they may be payable out of a residuary
estate which includes property of a kind which bears its own
inheritance tax, such as property situated outside the UK, with the
consequence that the legacies might without this declaration he liable
to bear their own inheritance tax so far as payable out of that
property: see the Preliminary Note to 1114 at paras [214.59] and
[214.60]. The expression 'free of tax' is employed here in conjunction
with the definition and direction as to payment in cl 5 of this form
at para [225,15].
[225.13]
Gift of nil rate band legacy to children'
3. (1) If my [wife/husband] shall survive me2 then I give to my
trustees a pecuniary legacy of [f242,000 subject to payment thereout
of any inheritance tax payable by reason of my death which is
attributable thereto 3]/[the maximum sum (if any) which can in the
cir***stances subsisting at my death be given by this clause without
any liability being incurred for the payment of inheritance tax on or
by reason of my death and in particular (without prejudice to the
generality of the foregoing) for the purpose of determining the amount
of such maximum sum the cir***stances to be taken into account shall
include all chargeable transfers made by me during my life (or events
treated as such for inheritance tax purposes) so far as relevant for
the computation of inheritance tax on my death the dispositions taking
effect under this will (apart from this clause) or under any codicil
hereto and any property treated as if it were part of my estate for
inheritance tax purposes].
EITHER 4
(2) My trustees shall hold the said legacy upon trust for such of my
children [name] [name] and [name]5 as shall survive me and if more
than one in equal shares Provided that if any of my said children
shall predecease me leaving a child or children surviving me who shall
attain the age of [18/21/25] years6 such last-mentioned child or
children shall take and if more than one equally between them the
share of the said legacy which such deceased child of mine would have
taken had he or she survived me.
OR
(2) My trustees shall hold the said legacy upon trust to divide the
same into [10] equal parts and shall hold:
(a) [5] of such parts upon trust for [my son] [name];
[*1658]
Part C Complete wills
(b) a further [3] of such parts upon trust for [my daughter] [name];
and (c) the remaining [2] of such parts upon trust for [my daughter]
[name] 7 Provided that:
(i) if any of my said children shall predecease me leaving a child or
children living at my death who shall attain the age of [18/21/25]
years 8 such last-mentioned child or children shall take and if more
than one equally between them the share of the said legacy which such
deceased child of mine would have taken had he or she survived me;
(ii) if the trusts of any share of the said legacy shall fail because
a child of mine predeceases me without leaving a child who attains a
vested interest under paragraph (i) of this proviso then such share
(and any share which may have accrued thereto hereunder) shall accrue
to the other shares or share of the said legacy the trusts of which
have not failed and if more than one [in equal shares]/[in the
pro****tions which such shares bear to each other].
(3) The said legacy shall carry interest at the yearly rate of 6 per
cent from my death until the same shall be paid or satisfied or set
apart and invested and section 31 of the Trustee Act 1925 (as
hereinafter modified) shall apply thereto.9
1 Subclsuse (1) of this clause gives s legacy either of a fixed sum
not exceeding the current inheritance tax threshold or, effectively,
of a sum determined in accordance with a formula which represents the
maximum sum which can be given without incurring s liability for
inheritance tax. The current inheritance tax threshold (tax year
2001-2002) is =A3242,000, but it is likely to be subject to alteration
in successive years. As matters stand, if the testator's will provides
(in the event of his spouse surviving him) a non-exempt legacy of
=A3242,000 and an exempt gift of the rest of the estate to or for the
benefit of his spouse, no inheritance tax will be payable on the
testator's death unless the inheritance tax threshold is reduced to
less than =A3242,000 before the testator's death, or unless lifetime
transfers fall to be taken into account or there is property treated
as part of the testator's estate for inheritance tax purposes (and not
exempt) such as property subject to a reservation (see Part A, para
[200.76]) or settled property in which he had an interest in
possession. Where a sum is specified for the legacy under this clause,
and any other non-exempt legacies or other gifts are included which
will take effect on the death of the first spouse to die, the amount
of this legacy needs to be reduced by the amount or value of those
legacies or other gifts. The alternative formula for ascertaining the
amount of the legacy contained in the final set of square brackets in
sub-cl (1) is intended to ensure that the amount of the discretionary
legacy does not exceed the inheritance tax threshold where other non-
exempt gifts are made by the will, or where there are non-exempt
lifetime chargeable transfers or property treated as part of the
testator's estate to be taken into account on the death. It also
prevents any waste of the nilrate band where the inheritance tax
threshold is increased after the will has been made. Where the
testator has business or agricultural property it may be necessary or
appropriate in a gift of this kind to give a fixed sum, or, if a
formula is used, to impose an upper cash limit on the gift: see the
Preliminary Note to C11 at paras [223.8]-[223.10].
2 This precondition is imposed to avoid unnecessary duplication of
gifts (te this one and the residuary gift) in the event of the spouse
not surviving the testator. This gift should not be made conditional
on the spouse surviving the testator by a survivor****p period: see the
Preliminary Note at para [225.4].
3 Making the gift subject to inheritance tax will, in the event of
this gift taking the non-exempt estate over the inheritance tax
threshold (eg because of changes in the law or the testator having
made lifetime gifts during the seven years preceding his death), cause
the size of the chargeable estate lobe less than it would be if the
gift was free of inheritance tax: see 814 at pars 1214.741. 4 The
alternative forms give the legacy to the children either in equal or
unequal shares, with substitutional provisions for the children of a
predeceasing child. Similar alternatives are provided in the gift of
residue which takes effect if the spouse does not survive the
testator.
[*1659]
5 See the Preliminary Note on reciprocal wills and the ultimate
destination of property at pars [225.7].
6 The grandchildren will be lives in being at the testator's death for
perpetuity purposes, so that there is no risk of infringing the rule
against-perpetuities in specifying an age exceeding 21.
7 See the Preliminary Note on reciprocal wills and the ultimate
destination of property at pars [225.7].
8 The grandchildren will be lives in being at the testator's death for
perpetuity purposes, so that there is no risk of infringing the rule
against perpetuities in specifying an age exceeding 21.
9 There is a contingency in the substitutional provision in proviso
(i) to sub-cl (2) of this clause. A contingent legacy does not
ordinarily carry the intermediate income, but one of the exceptions to
this is where the legacy is directed to be set apart, invested and
held on trust (see Vol 1, pars 132.151). This clause directs the
trustees to hold the legacy on trust, and that may be sufficient to
carry the intermediate income, but sub-cl (3) makes the position
clear.
[225.14]
Administration trusts of residue
4. (1) I give all my property not hereby or by any codicil hereto
otherwise effectively disposed of [(including any entailed or other
property over which I shall have at my death a general power of
disposition by will)]1 to my trustees to hold on the trusts set out
below with power at their discretion to sell all or any of it as and
when they think fit?
(2) My trustees shall pay my funeral and testamentary expenses 3 and
debts and any legacies given by this will or any codicil hereto out of
such property or its proceeds and shall have a discretion as to how
such payments shall be borne as between capital and income.4
(3) Subject as above my trustees shall hold such property and the
assets from time to time representing the same (hereinafter called 'my
residuary estate') on the trusts set out below and shall invest all
money comprised in such property or arising from its sale in any of
the investments hereby authorised with power to change such
investments into any others hereby authorised.
(4) In the administration of my estate and the execution of the trusts
of this will or of any codicil to it: (a) my trustees shall treat all
income as accruing on the date on which it becomes payable regardless
of the period in respect of which it shall have accrued and shall not
make any statutory ap****tionment of the same;5 and (b) none of the
equitable rules of ap****tionment between capital and income shall
apply in any cir***stances whatever 6.
1 See Form C2.t, cl 6, n 1 at pars [224.27].
2 See Form C2.1, ell 6, ii 2 at pars [224.27].
3 See Form C2,1, el 6, n 3 at pars [224.27].
4 See Form C2.l, cl 6, is 4 at pars [224.27].
5 See Form C2.l, cl 6, n Sat pars [224.27].
6 See Form C2.1, cl 6, n 6 at pars [224.27].
[225.15]
Gifts made free of tax
5. Any specific gift or pecuniary or general legacy made by this will
or any codicil hereto which is expressed to be 'free of tax' shall be
free from the payment of any inheritance tax or foreign tax or duty
payable on or by reason of my death to which such gift or legacy would
otherwise be subject and such inheritance tax or foreign tax or duty
shall be paid out of my residuary estate.1
[*1660]
Part C Complete wills
1 See Form C2. 1, sit, n 3 at para [224.27]. Where specific gifts and
pecuniary legacies are of, or wholly payable out of, free estate in
the UK, the inheritance tax on them will be a testamentary expense
payable out of residue without any express provision, and it is only
where there is foreign property or settled property being disposed of
by the will that a gift which is intended to be free of tax needs to
be expressly declared to be free of tax. See also the Preliminary Note
to B l4 at paras [214.59].-[214.60].
[225.16]
Beneficial trusts of residue' 6. (1) My trustees shall hold my
residuary estate upon trust for my [wife/husband] if [she/he] shall
survive me.
EITHER
[(2) If my [wife/husband] fails to survive me my trustees shall hold
my residuary estate upon trust for such of my children [name] [name]
and [name]2 as shall survive me and if more than one in equal shares
Provided that if any of my said children shall predecease me leaving a
child or children surviving me who shall attain the age of [18/21/25]
year such last-mentioned child or children shall take and if more than
one equally between them the share of my residuary estate which such
deceased child of mine would have taken had he or she survived me.]
OR
[(2) If my [wife/husband] fails to survive me my trustees shall hold
my residuary estate upon trust to divide the same into [10] equal
parts and shall hold:
(a) [5] of such parts upon trust for [my son] [name]; (b) a further
[3] of such parts upon trust for [my daughter] [name]; and (c) the
remaining [2] of such parts upon trust for [my daughter] [name] ;4
provided that: (1) if any of my said children predeceases me leaving a
child or children living at my death who shall attain the age of
[18/21/25] years 5 such last-mentioned child or children shall take
and if more than one equally between them the share of my residuary
estate which such deceased child of mine would have taken had he or
she survived me; (ii) if the trusts of any share of my residuary
estate shall fail because a child of mine predeceases me without
leaving a child who attains a vested interest under paragraph (i) of
this proviso then such share (and any share which may have accrued
thereto hereunder) shall accrue to the other shares or share of the
said legacy the trusts of which have not failed and if more than one
[in equal shares] [in the pro****tions which such shares bear to each
other].
Residue devolves on the other spouse, if surviving. If the other
spouse does not survive the testator, residue is given to the
children. In view of the nil-rate band legacy, it is not appropriate
to incor****ate a survivor****p condition in the gift to the spouse: see
the Preliminary Note on survivor****p conditions at pars [225.4]. Two
alternatives are given for the trust for the children;
[*1661]
the alternatives correspond with the alternatives in the legacy
contained in cl 3(2) of this form at para [225.13].
2 See the Preliminary Note on reciprocal wills and the ultimate
destination of property at pars [225.7].
3 The grandchildren will be lives in being at the testator's death for
perpetuity purposes, so that there is no risk of infringing the rule
against perpetuities in specifying an age exceeding 21.
4 see the Preliminary Note on reciprocal wills and the ultimate
destination of property at pars [225.7].
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