IHTM11129 | Procedure: selection trusts

The position can be complicated where persons other than the testator (IHTM12001) (for example, the personal representatives (IHTM05012) or trustees) have the power to select charitable bodies or objects that benefit.

Situations you may encounter are:

A trust or bequest directing the trustees to appoint or distribute to bodies described as ‘charities’ or ‘charitable’.

These can be accepted as qualifying for charity exemption without identifying the recipients if the Will (IHTM12041) has effect under UK law.

A Will can be accepted as having effect under UK law where the deceased died domiciled (IHTM13021) under common law in the UK, unless the Will shows an intention that some other law is to apply. Common law domicile remains important for determining the succession of assets. Where the Will has effect under UK law the use of words allowing others to choose the charitable objects is construed as allowing them to choose between such institutions in the UK whose objects are exclusively charitable in accordance with the law of England and Wales. In practice ‘charitable’ can be taken as having the same meaning under the law in Scotland and Northern Ireland.

There is one exception to the above: if the trustees/executors are given the power to decide the identity of the charitable donees in cases of doubt or dispute. These are not charitable selection trusts (Re Raven [1915] 1 Ch 673 and Re Wynn [1952] Ch 271).

Refer the case to Technical if the deceased was domiciled under common law outside the UK, if there is otherwise doubt about which law governs the interpretation of the Will or, if our view is challenged.

A bequest for purposes which appear to be charitable, but which does not restrict the selection to bodies described as ‘charities’ or ‘charitable’

This does not qualify for relief. This is because distributions may be made to bodies working in that field which are not themselves charitable (IHTM11112) (for example, those operated for financial gain). Actual appointments or distributions to qualifying charities may be exempt if IHTA84/S144 applies (see below).

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The deceased’s Will or an Instrument of Variation (IHTM35011) establishes a charity in its own right.

You should follow the procedures outlined at IHTM11130

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A charitable trust is established in the deceased’s lifetime and property is transferred to it during the life and/or the death of the deceased.

Follow the procedures outlined at IHTM11130.

If there is any reference to bodies outside of the UK in any of the above situations please refer the case to Technical.

Example

A Will contains a clause stating ‘I devise and bequeath all the residue of my estate … unto my executors upon trust that the executors shall apply the same for such charitable institutions or such other charitable objects in the UK and South Africa, or either of those places as they may in their absolute discretion select’

This bequest does not qualify for charity exemption.

However, if appointments or distributions are made to qualifying charities within two years of a death, exemption may be due on these, provided IHTA84/S144 applies. If it is claimed that appointments or distributions (IHTM35181) come within IHTA84/S144, refer the case to Technical.