Lifetime transfers: gifts with reservation (GWRs): settled property: settlement on discretionary trusts
If a donor makes a settlement and is one of the members of the discretionary class of beneficiaries, this is a gift with reservation (GWR).
- The donor’s position as a member of the discretionary class of beneficiaries is not an equitable interest retained by them (and so not included in the gift)
- as the donor is a member of the class, they have not been excluded (IHTM14333), or virtually excluded, from enjoyment. The fact that they do not receive any tangible benefit during the relevant period is immaterial.
If a donor settles property on discretionary trusts and is one of the discretionary class of beneficiaries, the gift is a GWR. However, a donor who is not named as a member of the discretionary class may
- become one if the trustees have power to extend the class of beneficiaries, or
- benefit if their spouse or civil partner is a beneficiary.
Anthony transfers assets into a discretionary settlement under which he is not included in the class of beneficiaries. There is however power to the trustees to add beneficiaries including Anthony to the class at some future date. That Anthony can be considered as a potential beneficiary is sufficient to say that the trust fund is not enjoyed to the entire or virtually to the entire exclusion of benefit to him under the settlement and the gift will be a GWR (CIR v Eversden  STC 822). Only if the trust irrevocably excludes Anthony from being a beneficiary under the trust will a GWR not arise.
Anthony makes a discretionary settlement. The class of beneficiaries includes Anthony’s wife, but not himself.
This does not constitute a reservation but if Anthony shares any benefit (IHTM14339) taken by Anthony’s wife, this can be a GWR. you should consider whether a GWR claim is appropriate.